Jack Frost Saves Compass Minerals' Salt Business as Fertilizer Sales Slump -- Now What?

An abnormally cold winter boosted the sales and earnings of Compass Minerals following two sub-par snow years. With the polar vortex now in the rearview mirror, where does the company go from here?

Jun 21, 2014 at 6:00AM

After two relatively mild winters, Jack Frost delivered a polar vortex to the Midwest, Southeast, and Northeast U.S. during the winter of 2013-14. While the bone-chilling cold and heavy snowfall were mostly unwelcome to most of us, it sent cities scrambling to replenish their deicing salt inventories. This was just in the nick of time for Compass Minerals (NYSE:CMP), whose salt inventories began to become bloated after the drought and mild winter of 2012-13 despite steep production cuts. The 13.2 million tons of salt sold in 2013 provided much-needed inventory relief.

CMP Annual Salt Tons Sold 2010-2013

What drove the 37% increase in tons sold was a super-sized 88% increase in the number of snow events in the 11 cities in which the company operates.  As figure 2 illustrates, the 272 snow events during the last winter was well above the 10-year average for the company's service area and follows two straight years of below-trend snow events.

CMP Snows Event Per Season Q1 2014

The company's much smaller specialty fertilizer business had held up relatively well, but potash demand had begun to weaken due to persistently high prices. The stock finally gave way to industry pricing pressures in July 2013, however, potash pricing for Compass Minerals has been relatively firm. The relative pricing power is likely due to the type of fertilizer, sulfate of potash, that the firm sells. Intrepid Potash (NYSE:IPI) is the only other company in the U.S. that sells this variety of potash. Sulfate of Potash generally sells at a premium to Muriate of Potash or KCI, which industry giant Potash Corp (NYSE:POT) sells. Sulfate of Potash has a low chloride content, which makes it great for growing crops with a low tolerance for salt. This value proposition gives both Compass Minerals and Intrepid Potash the ability to price their potash at a premium to Potash Corps Muriate of Potash.

CMP SOP vs MOP prices Q1 2014

Where do they go from here?
In November of last year I penned a piece entitled "Will Jack Frost Help Compass Minerals Offset Slumping Potash Sales?" and wrote the following:

If there is average to above average snowfall in Compass Minerals' representative markets, the stock price may pile on top of the snow and climb toward the stock's 52-week high of $91.88 per share in my opinion.

The snow came and the stock did indeed hit that 52-week high before setting a new high of $94.33. At a recent close of $92.94 per share, the stock is around 4% from its all-time high of $97.61. Where the company goes from here is the next question. With a leading P/E of 21, and a negative five-year earnings and EPS growth rate, it seems likely that the stock stalls at these lofty levels.

While the company operates a dependable, non-cyclical business, adverse weather can introduce earnings volatility. The stock's current dividend yield of 2.6% is roughly equal to 10-year treasury rates and should offer some support to the stock as long as interest rates don't rise. Weather trends suggest a winter favorable to the company, although it is doubtful that the company's service area will repeat the record number of snow events of last season.  One thing that would boost the stock price would be a share buyback. However, in contrast to current Wall Street trends, the number of outstanding shares has increased and not declined. In my opinion, any material new growth from here is unlikely until a new catalyst emerges.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

GC Mays has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information