By Stephen D. Simpson, CFA
May 11, 2006
Stupid markets. Don't they know this was a weak quarter for Compass Minerals (NYSE: CMP)? Don't they know that there was a strike called at one of its mines in Ontario? Where's the "Gasp! Shock! Horror!"?
Unfortunately for a value vulture like me, investors have been decidedly rational about this stock. Which is great if you already own it, but not so great if you're like me and have it on your "love it if it gets cheaper" list.
As I indicated, this wasn't an especially strong quarter -- not that there was anything management could have done differently. Revenue dropped 14% on 17% lower product sales, as a mild winter cut demand for deicing salt and rains in California kept a lid on the potash business. And with lower sales came lower earnings, though I find it rather impressive that management still found a way to boost the operating margin by better than a full point.
Speaking of the strike, the disruption is at a location in Ontario. And honestly, I have to wonder about the union's wisdom as it pertains to timing. I mean, Compass, and presumably Cargill and Rohm & Haas (NYSE: ROH) as well, exited the winter de-icing season with above-average inventories. That suggests to me that the company has the room to play this one out a little longer than normal without seeing any real impact or disruption to the business. But then again, labor negotiations are a separate world unto themselves, so who knows.
While Compass will probably never see the wild pricing action that has lifted companies like Phelps Dodge (NYSE: PD) or Rio Tinto (NYSE: RTP) -- or coal miners like Peabody (NYSE: BTU), for that matter -- it also doesn't face quite the same competition and variability in demand as many other commodity companies. So while salt is very much a commodity, this is a commodity story with a twist.
Today's price on the stock doesn't suggest wild appreciation potential. That said, the company pays a good dividend (which looks pretty secure) and should be a dependable cash flow machine. So while I'll continue to hope for a slightly better price, income-oriented folks could perhaps find some value here, even at today's level.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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