Compass Minerals International, Inc. (CMP) Earnings Call Transcript & Summary

Thank you. Hello everyone. Thank you for joining us and welcome to Compass Minerals Fiscal Third Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Tripp Sullivan, Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to the Compass Minerals Fiscal Third Quarter of 2026 Earnings Conference Call. Today, we will discuss our most recent quarterly results. We will begin with prepared remarks from our President and CEO, Edward Dowling, and our CFO, Peter Fellman. for the question and answer portion of the call will be Ben Nichols, our Chief Commercial Officer. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, August 6, 2026. outlooks entail assumptions and expectations that involve risks and certainties that could cause the company's actual results to differ materially. A discussion of these risks can be found on our SEC filings 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 or in our presentation, both of which are also available online. And with that, I'll now turn the call over to Ed.

Thank you, Tripp. Good morning, everyone. I'll start with the plant nutrition business because it's earned the lead. At Ogden, we produce segment-adjusted EBITDA of $15 million in the quarter on improved pricing and lower per-unit costs. We again raise our full year guidance for this business. Operational improvements we put in place two years ago are compounding. team who was determined to restore the business to the 40 to 50 million adjusted EBITDA range per year and have now exceeded that level. We continue to invest in Ogden with the dryer project underway that we expect to complete by the end of next fiscal year. That investment will allow us to improve product yield, further improve production volume and cost profile of this operation, as well as finish good product quality. We're excited about the continued momentum at our Ogden site, solidifying our position as the leading North American producer of sulfate of potash. In our salt business, the commercial story is strong. We realized meaningful price gains in the highway de-icing during the quarter and beginning to see a constructive pricing environment in our CNI product line as well. These are encouraging and I want to put them into context. When comparing the salt costs in our P&L between periods, there are a number of factors that must be considered, including production costs, logistic costs, regional and product mix. As a winner unfolds, where we sell our products, where they are produced, how it is shipped to the customer and our production costs all have various levels of impact, particularly in a salt industry. season like this past one where inventory levels became very tight. Production tons on our mine are up year over year. That's a positive. But costs, while lower than last year as original guidance had anticipated, have not come down the way we expected. And I want to address that directly. to three factors driving higher than anticipated production costs. First, despite the above, we're not hoisting enough tons out of Goderich at the cost we had planned. Second, we have increased our maintenance spending at both U.S. mines to improve operational uptime and stability, which has been guided by the implementation of a preventative maintenance system. Lastly, we've increased the headcount to maximize every opportunity to produce more tons out of the mines. In terms of logistics, our total cost metric was burdened by global fuel costs and increased rates due to tightening of truck capacity. We have 3 accelerator teams working at Godrich focused on specific operational improvements. We're working on improving our cut times and rates, and investing in training required to sustain those improvements as we as well as overall mine design and sequencing. Our maintenance program is delivering results, focused on quicker turnarounds and improved equipment availability. Let me be direct about the trade-off that we're making. We're spending incremental dollars on labor and maintenance in the current period cost for longer term operational stability, production volumes, and profitability. This is the right decision for the business, but also means that our cost metrics have not yet reflected the efficiency gains we're targeting. In addition, we have other accelerator teams working on logistics and enterprise-wide improvements, including network optimization, procurement efficiency, contract management. All of these are focused on sustainable cost improvement and risk mitigation. As we think about the future of the company and the sustainable improvement, we have made an operational leadership change. Patrick Marin is no longer with the company, and I'd like to thank Pat for his service and wish him the best. Brandon Reisner has been promoted to Chief Operating Officer. He's led impressive operational improvements in our plant nutrition segment. and in the operational leadership of our CNI product line. Combination of prior mining experience and a track record of losing positive outcomes make them a natural fit to lead our operations. Turning to the bid season, the 26-27 highway de-icing bid season has been very constructive. In our core U.S. markets, we're seeing substantial price improvement year over year, in some cases well into the double digits. with consistent growth in demand tenders. North American highway deicing markets remain structurally tight. Inventories across the industry are low following the past winter. and it is supporting both pricing and tender sizes. As we look forward into fiscal 2027, let me give a sense of what we are thinking about volume. The 2025-26 winter season trended ahead of seasonal averages with snowfall events in our key markets higher than the recent past. That strong demand, coupled with our dissonant approach to working capital and the current production constraints at Godrej has left us and the industry with historically low inventories across the system. Given those realities, along with an assumption of more normalized winter weather, we expect to commit to a reduced man profile for fiscal 2027 relative to the past seasons. We will provide tighter guidance when we report fourth quarter results. But pricing gains we have secured for the business, combined with continued focus on production increases, and cost per ton improvement should position us to improve our per unit margins headed into next year. Let me address tariffs briefly. As you're aware, tariffs on Canadian goods shipped to the United States are set to take effect on August 19th. A large majority of the gross annualized exposure relates to the highway de-icing salt shipped from our garbage mine into the United States. Through proactive measures within our commercial agreements, including pass-through provisions that are now standard in several of our key contracts, we believe we meaningfully reduce our exposure to those risks. The situation remains fluid and we're closely monitoring it. We believe that we're in a stronger position to manage this than a year ago, given our proactive measures structures, constructing pricing environment, and our improved balance sheet. In addition to potential impact to tariffs, we're closely monitoring the variability within the fuel market, which is incorporated into our 2026 guidance. We expect to provide clear understanding of the anticipated fuel impact and sensitivity within our detailed 2027 guidance when we report Q4, but we wanted to note our current focus on mitigation efforts moving into next year. On capital projects, as part of our ongoing investment in the future of Goderich, we have been planning to construct the new mill. Given the complexity of executing a project of the scale within an operating underground mine, we're taking additional time to evaluate the engineering, sequencing, and timing as well as establishing appropriate project governance. We cannot afford disruption to the production during a period where we're focused on improving output and rebuilding We expect to provide more detailed update on the project timeline early next year. I'd like to take a quick moment to clarify some news that was issued earlier in the quarter about a potential Utah lithium project. To be clear, we have no plans to get back into the lithium market. This announcement that EnergyX was a non-binding MOU where we're evaluating leasing them land and brine used in our Utah operations. have no capital commitment or operational expenses. Nothing in these negotiations has been finalized. Turning to the balance sheet, net leverage has declined to 2.8 times from 4.3 times a year ago. Total net debt is down 13% year over year. A recent credit upgrade from S&P is a direct reflection of the work we've done to reduce debt and strengthen the business. I know there are questions about how we plan to allocate capital going forward, and I want to signal how we're thinking about it. Our near-term priorities are clear. Investment in our assets, continued debt reduction where it makes sense, as our balance sheet strengthens and our operations stabilize, the opportunity to consider other uses of capital become more real. The Board is engaged in this discussion and we expect to share more on this topic when we report full-year results. Before I hand it over to Peter, let me step back for a moment. Two years ago, we laid out a back to basis framework on what we're going to improve this company. At Ogden, the process of delivering the results then speak for themselves. In SALT, commercial execution is strong. The market is constructive. The balance sheet is in a very different position than it was even a year ago. work and our mining operations is taking longer than planned, and we are being direct about that. The process is the same. The team is engaged. The work will continue. We are really excited about the future. business and organic opportunities this work has created.

Thanks, Ed. Good morning, everyone. I'll walk through our third quarter results and the updated outlook. All comparisons are to the prior year quarter unless otherwise noted. For the third quarter, total company adjusted EBITDA was $39.9 million compared with $41 million in the prior year. We reported a net loss of $5.7 million compared to a net loss of $7.7 million in the prior year. 17 million in the prior year. In SALT, third quarter revenue increased 5% year over year to 173.9 million. Segment pricing was up 9% overall, and hybrid pricing was up 8%, and CNI pricing was up 6%. highway sales volumes declined 6% while C&I volumes increased 3%. SALT adjusted EBITDA was $38.9 million for the quarter, down 15%, and operating earnings decreased 25% to $21.2 million. The decline reflects lower highway sales volumes and higher per-year production and distribution costs within the segment, partially offset by the pricing gains. In plant nutrition, revenue was $37.6 million for the quarter, down 16% compared to the prior year period. The decrease is primarily driven by a 19% decrease in sales volumes attributable to the windward SOP asset sale in March 2026, partially offset by a an average sales prices, excluding the impacts of the windyard sales volumes increased approximately 4% year over year. Despite the sale, operating earnings were $7.8 million, up 50% from $5.2 million a year ago. Adjusted EBITDA improved 32% to $15 million from $11.4 million. Both product costs and distribution costs declined on a per-unit basis year-over-year, driving the margin expansion at Ogden that Ed described earlier. Turning to cash flow in the balance sheet, operating cash flow for the first nine months was $162.8 million compared to $204.6 million in the prior year period. Capital expenditures for nine months totaled $62.1 million compared to the $53.8 million in the prior year, reflecting planned investments across our operations. Total debt as of June 30th was $716.6 million, down from $825.3 million a year ago. Net debt was $660.3 million, a reduction of $85.6 million year over year. The total liquidity was $328.1 million consisting of $56.3 million in cash and $271.8 million of availability under our revolving credit facility. As Ed noted, our net leverage ratio improved to 2.8 times from 4.3 times a year ago. Now let me walk you through our updated fiscal 2026 Outlook. We are raising our full-year consolidated adjusted EBITDA guidance midpoint to $230 million, with a range of $218 million to $242 million. Plant Nutrition were raising segment-adjusted EBITDA guidance to a range of $49 million to $57 million, up from $43 to $47 million previously. primarily reflecting the continuous strength in our pricing and cost performance at Ogden. In SALT, our current adjusted EBITDA guidance range is $225 million to $236 million. narrowed from 225 to 240 million previously to reflect the mixed dynamic, inflationary pressures, and the pace of operational improvements that Ed previously discussed. Our expectations for corporate and other costs remain unchanged in the range of $51 million to $56 million for the full year, along with full-year capital expenditures in the range of $90 million to $110 million. In closing, I'd like to note that we are in a stronger financial position and plant nutrition is outperforming our expectations. Salt pricing and demand remain very constructive, and we are laser focused on converting operational work at GodRates in sustainable cost improvement across the platform. We're also continuing to deploy capital with discipline, including reducing leverage where it makes sense. That concludes our prepared remarks. Operator, we're ready to take some questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open. Please go ahead. A gentle reminder to unmute locally.

Sorry, I was muted. Thanks for taking my question. Just talking about your guidance around bid season early in 27 here. When you think about how well sell bid seasons go and rock well, both bid seasons going here, does that imply when you think about your entire business, maybe high single digit price growth next year, maybe mid to high? It seems like you're saying that volumes might be a little bit lower if you get normalized weather, what you're actually going to sell. And then what are costs looking like in 27? Should we see costs up a little? It's really speaking about more net back expansion, so we think about price versus cost things.

Good morning, Joel. Nice to hear your voice when you're unmuted. Appreciate the question. The bid season has been really great, really based on the previous winter and really the inventory management discipline that's been established in the market. Most of the bids of course are transparent. And we see a wide range of outcomes depending on where you are. Our focus has really been to really dive in and really try to serve those markets who we maximize our margin with and not trying to serve everything everywhere, albeit we do try to spread it out just because you never know exactly where winter is going to be. You know, it'd be safe to say overall, you know, we're kind of around double digits and price increase. Okay, with regard to looking at cost, etc. going forward, this is an important point. We're working really hard on our mine costs. You know, we've got this fantastic mine, Godrich mine, the world's largest underground salt mine. And, you know, the cost production is up, costs are down, these are unit costs are down. On the logistics side, we're battling fuel and truck carrier a bit, but we're laser-focused on this. We'll provide guidance in the fourth quarter.

Okay. It seemed like in your prepared remarks you were speaking about you would expect with normal weather that 27 volumes could be lower based on the reads you gave. There's been a lot of churn at the CEO level at Compass the last number of years. You have a lot of objectives that you came in with, right? Lower costs, you had a lot of things to do, working capital management, inventory management, things weren't great when you took over a few years ago. and you've got some aggressive targets on cost. But like I said, you've had a lot of churn at the COO level and you're talking about delaying some of the decisions on the mill project, not getting the cost as fast as you wanted. I can't help but think it's all tied together. Can you sort of speak about your journey here and what has to get done to achieve what you wanna do?.

Yes, look, appreciate the question. The you know, we're first of all, let me just say we're very grateful for Pat and the service and wish him the best in the future. This is Pat Merritt. But we're really pushing hard and we need to have an organization that's really fit for purpose. And we're really focused on our costs. I don't know whether you've had a chance to meet him yet, but we'll make sure you do. But Brandon, Brandon has been leading the efforts with plant nutrition, which is a fantastic story for the company. In addition, he's been our operational leader in our CNI product line. Also done a really good job in increasing the earnings from that part of our business. Just even before he brings a history of success, whether it was in compost, he's the guy that started really the way we look at capital allocation for capital investment, project capital investment. And even before that with Peabody, it's a great track record of operational improvements. That's what we need right now. And so, you know, as much as I like Pat, you know, the needs of the company are more important than any individual. So that's what we're doing. With regard to the project, It'd be one thing if we're building this mill in a parking lot and it'd be pretty easy. But given the fact that we're doing this in an operating underground mine, and with all materials, everything coming down the same shaft as our operating people and our operating materials, it's very complex. And so we need to make sure that we have a very high degree of front-end loading in terms of our engineering, our project execution plan, all of the logistics that go around that. We have a rock solid owner's team. We really need to put this all in place before I'm ready to take it to the board of directors. Okay. I think I hit your points, Joel.

Thank you. As a final reminder, if you would like to ask a question, please press star 1. We'll now go to David Silver of Freedom Capital Market. Your line is open. Please go ahead.

Questions here maybe let's just start with the progress at plant nutrition. So, you know, first of all, I mean, congratulations. I mean, there's especially most recently there's been a significant kind of step down in, I mean, cash costs, I'll call it. But, you know, to achieve those, I had a couple of questions. To what extent is the plan there to just rely on pond-based tons and how much of maybe the bottom line progress to date has been, you know, from supplementing with purchased potash? And then maybe bigger picture, again, my models go back, you know, more than a decade here. but is the progress to date maybe would you say it reflects kind of getting back to the operating environment that was in effect let's say in the late 2010s or very early 2020s or you know is there something qualitatively different being done to kind of significantly boost the per ton economics.

production economics. Okay. David, thanks. Great question. Look, it's been a fantastic story for the company in terms of the restoration of that business to where it really should be. And recognize that before when we reported plant nutrition also included our our our vineyard vine up in Canada. These results are without vineyard. And so it's really a great story for our Utah partners and our colleagues out there in terms of restoring this business. And there's more to go because we're, as you know, we're executing the dryer compaction plant where we lose, we have a lot of yield loss there. We're executing a project there, which will be done about this time next year really make a better better product so we'll see additional yield come from that well that'll happen at a lower cost basically it's an incremental cost we either put the product and today you put the product into what we sell or blows away as dust and that's not quite right way to say it but we lose it but Well, we'll capture that going forward and we'll produce a much higher quality product for our customer base. So the improvement, we expect that to continue to improve at least through, and we should start seeing that, about this time next year. Let's see, in terms of the last part of your question, you know, I wasn't here 10 years ago, but we restored the outcomes to that, but they're all, it's really, the answer to that is, if you've got that back to where it was, the answer to that's yes, but are you doing anything different? The answer to that's yes, too. And it's a way that we, manage our harvest the tons and Brandon, for example, led that. It's the way that we manage that from a stockpile into the plant, really reducing variability in the plant. It's some things that we've done within the plant itself to improve recovery. beyond sort of historical level. So it's really a number of things that we've done to make this improvement over and above the success of the company had in the past.

And then maybe just a comment on the plan to supplement pond-based tons with purchased potash or just- Oh, yes. Sorry.