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Logo of jester cap with thought bubble.

Compass Minerals International Inc  (NYSE:CMP)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Compass Minerals Third Quarter Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Theresa Womble. Please go ahead.

Theresa Womble -- Director of Investor Relations & Assistant Treasurer

Thank you, Lauren. This morning, our CEO, Fran Malecha and our CFO, Jamie Standen, will review Compass Minerals Third Quarter 2018 Results and outlook for the rest of the year. Before I turn the call over to them, let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the company's expectations as of today, November 1, 2018, and involve risks and uncertainties that could cause the company's actual results to differ materially.

Please refer to the company's most recent 10-K and 10-Q for the full disclosure of these risks. And the company takes no obligation to update any forward-looking statement made today to reflect future events or developments. Our remarks also include non-GAAP financial disclosures, which we feel are important to provide a full understanding of our businesses and operating condition. You can find reconciliations of these measures in our earnings release or on our earnings presentation, both of which are available in the Investor Relations section of our website at compassminerals.com.

Now I'll turn the call to Fran.

Francis Malecha -- President & Chief Executive Officer

Thank you, Theresa, and good morning to everyone on the call. Today, I will provide a high level overview of our quarterly results, discuss some of the operational issues impacting our 2018 performance and outline our path forward from here. Although, we've had challenges within our salt operations which are pressured our earnings in 2018. We have also made important progress in other areas, particularly in our Plant Nutrition South America business and in our investments in our sulfate of potash plant in Utah. In addition, our cash flow from operations continues to be strong and we expect to generate positive free cash flow for the year.

Our total third quarter revenue increased to 11% from last year's results, driven by improvements in both the salt and Plant Nutrition business. As we've been discussing for a couple of quarters, the underlying market fundamentals of both these businesses have strengthened. Our salt business has benefited from the very strong 2017, 2018 winter in the UK, which has resulted in increased pre-season deicing sales there. In North America, sales have also improved as our deicing customers have returned to more typical buying patterns.

In addition, our pricing results from the highway deicing bid season in North America have been very strong. Inventories throughout the North American market are limited due to various market wide supply constraints and that has resulted in a strong pricing results for the upcoming winter for deicing products. In fact now that the full bid season is complete, we can report that our average contract price for highway deicing products for the 2018-2019 winter is 18% above last year's result.

The new prices will begin to flow through our results in the fourth quarter. Despite these positive developments, our salt earnings were disappointing. This is mainly due to the slow ramp-up of our continuous mining equipment at the Goderich mine and lower than expected production we achieved coming out of the strike, which ended in July. These issues resulted in about a $15 million reduction in our expected earnings in the quarter which Jamie will discuss in his comments. But I'd like to focus on is the path forward and why we still have confidence that our investments in that mine will yield the production rates, we are targeting in the savings, we expect.

Transformative change like we are implementing at Goderich has never without challenges. We assured that we have dedicated resources to tackle the remaining issues at Goderich from improving the engagement of our workers, so working with our employees to fine-tune our shift schedules to mechanical adjustments underground. We have added external resources as well to evaluate our work processes and ensure our workforce is properly aligned and trained. All of this is geared toward increasing the uptime of our equipment. While we currently anticipate this ramp-up will continue into 2019, we expect to be able to meet our customers' demands assuming average winter weather.

When we exit our annual shutdown at the mine in the spring of 2019, we expect to be at our targeted rates and building the inventories for the next winter season. We believe this measured approach to ramping up production in this transformed environment, it is important in order for us to achieve sustainable, consistent production over the long-term.

Now, let's discuss our Plant Nutrition business. Our focus in specialty and the semi-specialty high-value Plant Nutrition products continues to drive strong results for the company. Revenue for the combined Plant Nutrition business, which includes our North and South America segment's reached $425 million for the first nine months of the year, which was 9% above prior year results. EBITDA for the business increased over the same period by 12% to $99 million. These are impressive results, particularly considering the strengthening of the dollar has materially impacted our translated results and the US agriculture has been somewhat weakened by the current uncertainty regarding trade policies.

To believe our results reflect the strength of our product portfolio both in North America and Brazil, first, as the only SOP producer in North America we have further strengthened our ability to serve customers by our investments at our Ogden, Utah facility. In addition, to providing us with additional capacity we're now achieving greater efficiencies there and have greater ability to compact significantly more product. This means our cash costs have declined and that we have more of the granulated product that our customers most demand.

With more product available and on improving price environment, we expect a strong end to 2018. Our result in Plant Nutrition North America this quarter were also supported by increases in the sales of micronutrients, while the volumes are involved are small, they are impactful because of the strong pricing we achieved for these innovative products and they can generate attractive profit margins as well.

The fourth quarter is typically the strongest quarter for these sales to our North American customers. In South America the strengthened economics for Brazilian farmers combined with our high-value product portfolio, resulted in very attractive year-on-year growth. In local currency, the business they reported the highest level of quarterly earnings in its history with revenue up 41% and operating earnings up 79% from 2017 third quarter results.

Underpinning our success in Brazil and increasingly in our North American Plant Nutrition business, is our innovation platform. With over 70 R&D professionals working collaboratively in Brazil and the US, we have a robust pipeline of new or improved products at various stages of development. So far in 2018 we've advanced 16 projects in the pipeline and launched five new products, three in North America and two in Brazil. One of the new products in North America provides a unique combination of SOP coated with proprietary mix of micronutrients, specifically for the tree nut market.

In South America, we are excited to bring to the market a new product focused specifically on tree production for the pulp and paper industry. Before hearing from Jamie, I'd just like to share a couple of concluding thoughts. When we began our strategic plan in 2014, it included a significant capital spending plan intended to bolster the longevity of our assets, improve efficiencies and augment productive capacity at our two largest assets.

In addition, we saw to grow our Plant Nutrition business to broaden our product portfolio and expand in additional geographies. Clearly, while the market conditions of our businesses were challenged for a significant portion of this period with either mild winters were down, agricultural cycle impacts, we stayed the course and are complete with the majority of these initiatives. We have generated robust cash flow from operations so far this year and expect around $80 million in free cash flow at the end of the year. These data points are indicative of the fact that we are nearing the end of our major capital investment program and beginning to reap benefits from the investments. While the recent bulge in major capital spending has ended, we will continue to invest strategically and in a disciplined manner to renew our assets and drive innovation.

Now Jamie will provide some additional details on our financial results.

James Standen -- Chief Financial Officer

Thanks, Fran. Before reviewing our segment results, I'd like to touch on our consolidated results. Our net earnings this quarter totaled $12.8 million compared to 2017 GAAP results of $32 million. The year-over-year decline resulted from lower salt segment earnings as well as increased depreciation in our Plant Nutrition North America business, partially offset by increased earnings in our Plant Nutrition South America segment. You may also recall that in the third quarter of 2017 we reported two special items, which significantly impacted our GAAP results.

First, we reported a tax benefit of $13 million due to the release of tax evaluation allowances related to our Plant Nutrition South America segment. Second, we initiated a restructuring plant in the 2017 period which resulted in a pre-tax charge of $4.3 million, which impacted our Salt and Plant Nutrition segments as well as corporate costs. Details of these charges can be found in our press release. On a consolidated basis, the net impact of these items was an after-tax benefit of $10 million or $0.29 per diluted share.

Looking beyond net income, I'd like to note that EBITDA in the quarter was only modestly lower year-over-year at $67.2 million compared to $68.8 million last year. Additionally, we continued to generate strong cash flow from operations as Fran mentioned.

Turning to our Salt segment results, which are detailed on Slide 8 of the presentation. Salt revenue increased 10% on a 11% higher sales volumes, while average selling prices were flat. Looking specifically at highway deicing pricing, which was also flat, it's important to note that most of the salt sold in that business in North America was still under the prior season's contracts. We expect to begin enjoying the better pricing from this year's bid season beginning in the fourth quarter.

Adjusted operating earnings and adjusted EBITDA each declined significantly 32% and 51% respectively from the third quarter 2017 results. As we've discussed the key factor impacting these results was lower than expected production at the Goderich mine as we exited the strike period and resumed ramping up with the new mining equipment. We have estimated this cost at about $15 million for the quarter. We also experienced a 7% increase in shipping and handling costs due to increased fuel prices and freight rates, much of which was expected.

Moving to Slide 9, Plant Nutrition North America segment revenue rose 3% in the third quarter of 2018, as a 5% increase in average selling prices was partially offset by a 2% decline in sales volumes. While SOP sales declined modestly from prior year results, micronutrients sales increased more than 60%. Operating earnings declined 34% from prior year's adjusted results. However, EBITDA increased 19%, so, while depreciation is higher as a result of our significant investments to improve the Ogden, Utah production facility, we are now realizing better cost efficiencies at that plant.

These cost efficiencies along with our reliable production and the fact that we are the only SOP producer in North America puts us in an excellent position to be the supplier of choice in North America. Our Plant Nutrition South America segment results were very strong in local currency and in US dollars. Strong direct-to-grower sales fueled a 10% increase in agriculture sales volumes and improved demand for chlor-alkali products helped our chemical solutions business to a 6% year-over-year increase in sales volumes. It is important to remember that last year's third quarter underperformed expectations due to the slow start to the buying season for inputs.

Average selling prices also increased driven by a more attractive product mix as well as increases driven by the impact of higher input costs. The increase in sales volume and strong demand for our high-value specialty products also helped grow earnings and expand our profit margins. These attractive results demonstrate why we have been so bullish on our Brazilian based specialty plant nutrition business.

Our fourth quarter segment outlook is summarized on Slide 11. Beginning with our salt outlook, we have reduced our full year sales volume expectation by 2% to 3% to reflect the lower production of salt from our Goderich mine. While we have purchased salt to supplement our supplies, we also reduced our 2018-2019 commitment levels to ensure that we are able to supply customers in an average winter. Our year-over-year revenue expectations are being lifted by the 18% price improvement in North American highway deicing contract pricing. We also anticipate an improvement in our consumer and industrial pricing due to a more typical mix of product sales compared to last year when package deicing sales were depressed.

Unfortunately, we will continue to feel some cost impacts from lower Goderich production levels, including the cost of purchased salt. As a result, we expect our fourth quarter 2018 operating margin to be similar to last year's result. In Plant Nutrition, we expect the North America segment to realize volume and revenue growth based on solid demand indications for SOP and continued interest in our expanded micronutrient portfolio. While per unit costs are likely to increase modestly with higher micronutrients sales, we expect operating margins for the segment to improve as well.

The Plant Nutrition South America segment will likely experience flat sales volumes, given the fact that last year's fourth quarter sales volumes benefited from delayed grower purchases. The year-over-year change in product sales mix is also expected to modestly reduce operating margins in the fourth quarter of 2018 when compared to prior year results. Our corporate items are listed on Slide 12. The major changes include a reduction in our corporate and other expense due to increased austerity measures in our spending and our effective tax rate is expected to decline to 13% for the year.

Before concluding, I would like to spend a bit of time on our balance sheet and cash flow expectations. We are nearing completion of our major CapEx projects that began back in 2015. This elevated spending, two mild winters, a downturn in global agriculture markets and the difficult year we've had at Goderich have created short-term pressures on our earnings and therefore elevated our leverage ratio. Given where we are, it's important to understand our leverage sensitivities at the current debt and EBITDA levels.

You can assume either a $20 million change in EBITDA or a $75 million change in our total debt, will generate about a quarter turn change in our leverage. Given that, excuse me, given that we are currently fitting a trough earnings levels in salt, we are confident that we will start improving our leverage ratio next year. The good news is that the market fundamentals for our businesses have strengthened, while we expect some cost impacts from lower production at Goderich to flow into 2019. Strong pricing is expected to provide a meaningful offset. In addition, we've continued to maintain strong liquidity and expect to drive our leverage lower with a long-term target of 2.5 times debt-to-EBITDA.

In conclusion, although we are disappointed in the slower than expected Goderich mine ramp up. This along with market wide supply constraints is likely to setup favorable supply and demand dynamic in 2019, even under an average winter scenario. And as Fran mentioned, we remain confident in our continuous mining and haulage programs ability to reach our targeted production. In Plant Nutrition, we will continue to focus on our innovative plant nutrition solutions to drive growth in both North America and Brazil.

Finally, I'm pleased to report that we were able to defer some tax settlement payments into 2019 at no cost. And now our full year 2018 free cash flow is expected to be about $80 million. We have now passed through that very important inflection point for our free cash flow going forward. As our cash generation grows, we will return to strengthening our balance sheet, maintaining our assets, pursuing attractive strategic growth opportunities and returning value to shareholders.

Now Lauren, please start the Q&A session.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll take our first question from Vincent Anderson with Stifel.

Vincent Anderson -- Stifel -- Analyst

Good morning. Thanks. So when you look at this winter's one contracts on a like-for-like basis with last year, pricing was up -- 18%, where did volumes go in terms of one contracts at the midpoint? Knowing that there was obviously a stronger winter last year?

Francis Malecha -- President & Chief Executive Officer

Commitment levels, are you asking how far down commitment levels are year-over-year?

Vincent Anderson -- Stifel -- Analyst

Yes.

Francis Malecha -- President & Chief Executive Officer

There is a little bit of timing, that's going to occur between fourth quarter and first quarter. Overall commitments are down approximately 15% or so.

Vincent Anderson -- Stifel -- Analyst

Okay. And then when you think about we had in the third quarter, deicing salt sales were largely customers pulling through last year's contracts, it sounds like you mentioned some of your competitors maybe having some capacity constraints as well. Is it correct to assume that we would need to see an excessively mild winter to not see further price appreciation in next year salt bidding season?

Francis Malecha -- President & Chief Executive Officer

Vincent, it's Fran. I mean, my expectation would be, if we have an average winter, the market is tight, obviously our situation is what it is. And we're coming off a reasonably good winter last year. So I would expect that we're going to have a positive pricing environment with an average winter for the next year contracts.

Vincent Anderson -- Stifel -- Analyst

Great, thanks. And if I could ask a quick one on Plant Nutrition, you had 60% year-over-year increase in the quarter for specialty nutrients in North America, and you have, you started talking more and more about new product launches. Do you have, I know we're early for 2019, but do you have an idea of, at least what kind of targeted revenue contribution you like to see from your current portfolio? If not, next year, then call it over the medium term.

Francis Malecha -- President & Chief Executive Officer

I mean we don't have a target that we ready to share today. I would say that as we introduce these new products, the initial take up will be small and then over the next season it increases and really in the third season, you start to get up to those higher levels. So it's just the nature of the cropping seasons in the Ag cycle.

Vincent Anderson -- Stifel -- Analyst

So the new products launched in 2018, the five new products, will those be available for farmers to buy for the 2019 season?

Francis Malecha -- President & Chief Executive Officer

Yes.

Vincent Anderson -- Stifel -- Analyst

Excellent. Thank you.

Francis Malecha -- President & Chief Executive Officer

You're welcome.

Operator

We'll take our next question from Robert Koort with Goldman Sachs.

Ragnhild Stoeer -- Goldman Sachs -- Analyst

Yes, hi. This is Ragnhild Stoeer on for Bob. In your press release, you're guiding to a modest revenue growth for the South America segment, which in Q4 in 2017 was $1.24, however in the slides you guide to a range of $1.10 to $1.30. So should we assume that range is actually $1.24 to $1.30?

Francis Malecha -- President & Chief Executive Officer

Yes, that's right.

Ragnhild Stoeer -- Goldman Sachs -- Analyst

Okay. Thank you. That's all I have.

Operator

And we'll take our next question from Mark Connelly with Stephens Inc.

Mark Connelly -- Stephens Inc -- Analyst

Thanks. Couple of things, you said you've added resources at Goderich and you said that before, and you're still changing work schedules. Is the work schedule change a function of the disappointing results or was the original plan too aggressive? And how long do you expect to have those higher staffing levels?

Francis Malecha -- President & Chief Executive Officer

It's Fran. We came out of the strike with the work schedule that we trialled, and we did that for essentially the quarter. And we've recently started a new shift schedule that we think will allow our employees, to maximize the output in a 24x7 environment and give then the best opportunity to be successful, going forward.

James Standen -- Chief Financial Officer

And then on the, maybe just a comment on the ramp up and the cost as you've outlined. I mean coming out of the strike, do we underestimated some of the challenges to produce at these higher rates, and obviously we've adjusted our expectations as we move forward with the realistic plan. We talked about the shift scheduled to give our employees the best opportunity to be successful. We have added additional internal and external resources and expertise to improve our maintenance. And we have outside experts working with us to optimize kind of the maintenance and production planning and execution, identifying gaps and then we're working to close those gaps.

And then once we're certain that we can produce consistently Ag (ph) capacity, we'll continue to optimize our staffing in our support to ensure that when we are operating at that level, that the full cost savings will be in effect going forward. And as I talked, kind of, in my comments, we're ramping up in the 2019. We normally take our annual maintenance shutdown in that April timeframe. And coming out of that mid-year, we expect to be at those levels. Then fine-tuning our resources to get to the cost side of the equation. And assuming the average winter as I mentioned, we expect the requirement to run forward (ph) to build the inventories for the 2019-2020 winter.

Mark Connelly -- Stephens Inc -- Analyst

Okay. That's very helpful. Questions on Brazil, can you give us a sense of where in Brazil, North versus South, direct versus dealer, your business was strong or was it across the board? And did I understand, you just say that, the LatAm margins in 4Q won't be as good as 3Q, adjusted for seasonality or did I get that wrong?

Francis Malecha -- President & Chief Executive Officer

I'll take the business question and Jamie can follow-up on the margin side. I would say the business was strong overall in both the direct-to-farm business as well as into the dealer distribution network, but stronger in our direct-to-farm and that's where our higher margins are. And as we've been working and moving this business forward, we want to continue to really focus our growth there. We have 200 plus people, sales people on the ground and continue to go more direct to the farms, which isn't more on that Central and Northern part of Brazil. The Southern part is more into the retail and distribution network. But it's performing nicely and really moving along on our expectations.

James Standen -- Chief Financial Officer

And I'd just add a comment in terms of geography, 100% Corn was planted in the south, and there was a really good, we saw really good activity in the southern markets there in Brazil.

Francis Malecha -- President & Chief Executive Officer

Can you repeat your margin question?

Mark Connelly -- Stephens Inc -- Analyst

Yeah, I'm just trying to understand whether there was anything unusual in your margin this quarter. And did I hear you say that the fourth quarter margin in LatAm won't be as good?

James Standen -- Chief Financial Officer

Correct. So, so the, what happened is, it's a -- on a year-over-year comparison basis, last year we had improved sales mix in the fourth quarter because of the delayed purchasing. So it was a late planting, late application season. And when we talk about sales mix, we were talking about full year versus soil applied often. And so our full year products, which are higher value, higher margin products were sold, they slipped into the fourth quarter -- last year, which elevated margins. This year was a more normal season, and so this year we sold some of those full years earlier, kind of in the September timeframe, which boosted margins to the higher level this year versus last year which was depressed. So that's going to happen from year-to-year, it depends on weather, plantings and timings and input purchases by growers. But this year would be more typical.

Mark Connelly -- Stephens Inc -- Analyst

That's really helpful. Actually I got that. Thank you.

Operator

We'll take our next question from Joel Jackson with BMO Capital Markets.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good morning.

Francis Malecha -- President & Chief Executive Officer

Good morning.

Joel Jackson -- BMO Capital Markets -- Analyst

Fran, what gives you confidence that you can get Goderich back and running. Is there a chance, you may have to change the system a bit to be more of a hybrid of continuous mining, with more drill and blast maybe maintaining two systems, ending up with higher costs than what you had before versus your expectation of lower cost?

Francis Malecha -- President & Chief Executive Officer

I mean, I think when we made the decision Joel, to go to the continuous mining, it was really around couple of major factors there. One was air quality in the mine and by bringing in the mining equipment and moving out diesel vehicles, we have significantly improved that air quality to allow us to provide a safer environment for our employees and meet any regulatory metrics. And then also to be more efficient in production and improve our cost base. So we're continuing, as I mentioned earlier on a measured plan to improve and increase that production. And we're confident that we'll get there. It's, as I mentioned is transformational, we had a number of position reductions in 2019 and we went through a work stoppage and our employees are coming together and working to improve our results every day. So we remain confident. I don't see us going back to drill and blast. And as we move forward into 2019, we'll continue to assess our equipment requirements and our people requirements and adjust accordingly if necessary.

Joel Jackson -- BMO Capital Markets -- Analyst

Okay. And following up on that, I mean have you considered maybe going back at the conveyor system, I know you use a large conveyor network down there, some other continuous mining systems and mines, where we use a lot less conveyors and trucks. And maybe changing to a truck system, helped auto (ph) or is the air quality issue a problem here, like -- are your reassessing the conveyors?

Francis Malecha -- President & Chief Executive Officer

It is an end to end system from the mine phase where we're mining with these machines to our hoist. And that's where it gets more into the -- that optimization on the maintenance and production that I talked about earlier. And just -- and fine-tuning that and ensuring that, that equipment is up to where it needs to be in terms of performance.

Joel Jackson -- BMO Capital Markets -- Analyst

Okay and just finally, maybe you can give us a sense of, once you get through -- with the maintenance period in April with Goderich, what kind of salt cost your margin improvement, margin improvement could we see. Are we talking about couple of hundred basis points, few hundred basis points or do you (inaudible) against the middle of next year, as you get pass the Goderich issues?

Francis Malecha -- President & Chief Executive Officer

I don't think we want to give any specific description of what that looks like, yeah, Joel. I mean I think as we get through the rest of this year and as we continue to ramp up, we set our annual operating plan and we'll have a lot better insight into what that looks like in February certainly. So I just, we'd prefer to hold-off on that. The timing, as I talked about before of when these things hit certain rates are very impactful to the timing of when the lower cost starting to flow through the P&L. So that's -- we would just prefer not give you any color on that.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you very much.

Operator

We'll take our next question from Chris Shaw with Monness, Crespi.

Christopher Shaw -- Monness, Crespi, Hardt & Co. -- Analyst

Yeah, good morning. How are you doing?

Francis Malecha -- President & Chief Executive Officer

Great.

Christopher Shaw -- Monness, Crespi, Hardt & Co. -- Analyst

I'll just follow up on, I guess the previous type of question a little bit. I guess quantitative -- quantitatively for 2019, like what is the impact going to be? Is it from just merely this drop in commitment volumes of 15%? Is it, that the cost of -- will you still be selling imported salt there -- purchase salt or is it just that the mine will be operating at maximum efficiencies? I mean, what would be the drag and what part of those things it was actually could be the thing that would cause the impact of 2019 to the salt business?

James Standen -- Chief Financial Officer

So, we mentioned in our deck, and that there would be some carryover cost. You can see we've estimated $15 million to $20 million of cost. So that has, the components of that are some carryover imported salt costs and higher production costs from this year. So that $15 million to $20 million is our current estimate of the impact of 2019, mostly Q1.

Now as we, like I said, continue to ramp up, higher volumes produced quickly translate into lower unit costs of salt, which we would be selling in the second half of 2019. So the non-repeat costs are those that carryover this year. And as we produce at higher volumes and lower unit costs, we start to drop off in the second half of 2019. Is that helpful?

Christopher Shaw -- Monness, Crespi, Hardt & Co. -- Analyst

Yeah. Helpful. Then it sounds like it's all sort of all those things combined a bit. And then the 15% drop in commitments, is that, is that what you would -- planning on when you enter the strike over the initial guidance of sort of you could, I think you would lower -- you're going to lower commitments then. But if you have to accelerate the sort of -- after asking -- if you've to drop that number even more once the strike was over and the ramp-up didn't go as quickly as you expected or is that sort of what you always aiming at that sort of 50%?

Francis Malecha -- President & Chief Executive Officer

So it's a dynamic situation every year, so this year we happen to be going through a strike. We had some contingency plans in place and we're planning to produce with replacement workers. And you kind of know, how the story unfolded over the summer and ended up with finalizing a new collective agreement in July and so all that -- through all that time we're bidding tons

Our highway deicing team, our highway bid team is assessing bids, looking at production, assessing production, so we go through all those state and municipality bids through mostly complete through August. And then at the end of the season there is a commercial aspect where we've got another nice chunk of tons that is we call professional deicers. And so, those are some of the tonnes late in the season that we can decide not to serve. And so those are kind of we have bites at the apple along the way as we manage our success in our bids, our won and lost, in our production plans throughout the process they're connected.

Christopher Shaw -- Monness, Crespi, Hardt & Co. -- Analyst

Okay, great. That's helpful. Thank you.

Operator

And we'll take our next question from David Begleiter with Deutsche Bank.

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Fran, I know, you don't want to discuss too much about salt production costs, but what is the potential longer-term for salt production costs on unit basis? Once everything is operating out, designed and optimal rates.

Francis Malecha -- President & Chief Executive Officer

I think, Jamie mentioned that as we get through the balance of 2018 and move into 2019, and set our plans for the year, and typically our guidance on the February earnings call, we'll be able to talk more about those costs and impacts. And what the investors should expect into the future, whether that's for the balance of 2019 and then beyond. And there are some of these timing impacts that are driven by, certainly our production levels. And by the winter, by the demand and the pull on the inventory at the end of the day that results in where those costs land. So I would just prefer that we get into that timeframe and then are able to provide more concrete guidance to investors on the cost structure going forward.

We still expect that we will reach our production capabilities with the mining systems that we have in place and that the cost savings that those run rate levels will be. As we've discussed previously, I would just caveat that to say that, we are adding additional resources here to get up to those levels and then optimize after that.

David Begleiter -- Deutsche Bank -- Analyst

Very good and Jamie just quickly on 2019 and beyond tax rate, how should we think about that going forward?

James Standen -- Chief Financial Officer

Yeah, you should use in the 26% longer term tax rate.

David Begleiter -- Deutsche Bank -- Analyst

Thank you very much.

Operator

(Operator Instructions) We'll take our next question from Christopher Parkinson with Credit Suisse.

Graham Wells -- Credit Suisse -- Analyst

Hi. Good morning, everyone. This is Graham Wells on for Chris. Just a question around the cost that we still have to see from the shortfall in production at Goderich this year in terms of the timing of how it will flow into next year? I'm curious if, obviously a lot of it will be dependent on kind of the flow of sales, but I'm curious if there is any kind of color you can give us around the quarterly cadence of when you expect those costs to be realized?

James Standen -- Chief Financial Officer

Yes, so, you can assume there is $7 million to $9 million of costs coming through in Q4. So we talked about the 15 that just hit us in the third. There is $7 million to $9 million coming through in the fourth quarter. And then the carryover has been estimated at the $15 million to $20 million. So again, the timing of weather and snow events can impact and move those numbers around.

Graham Wells -- Credit Suisse -- Analyst

Okay, makes sense. And then kind of shifting gears over to Plant Nutrition in South America, I had a question on the volume outlook for the full year. I notice that the guidance range for full year 2018 came down quite a bit at the top end of the range. I know that you kind of had a more normal year, this year versus last but I was just curious as to what were the factors that led to that new guidance range versus the previous one that you put out last quarter?

Francis Malecha -- President & Chief Executive Officer

Yeah, sure. I mean the easiest way to describe, it is a focus on higher value products. So we're really just, we're selling higher value products that have -- that are sold in fewer amounts of tons, and have shared away some of the more commodity-type products. So we're focused on making more dollars, millions and strong margins. Volumes will come over time, we have plenty of excess capacity down there. So, yes, our guidance implies tonnage lower than 2016 levels, but we have improved profitability because of sales mix.

Graham Wells -- Credit Suisse -- Analyst

Got it. Makes sense. Thanks very much.

Operator

We'll take our next question from Mark Connelly with Stephens Inc. Mr. Connelly, your line is open, please check your mute function. And since we have no response, that concludes today's question-and-answer session. At this time, I will turn the conference back to Theresa Womble for any additional or closing remarks.

Theresa Womble -- Director of Investor Relations & Assistant Treasurer

Thank you, Lauren and thank you all for joining today. And if you have any other follow-up questions you may contact the Investor Relations department and information is available on our website. Thank you.

Operator

And that does conclude today's conference. We thank you for your participation, you may now disconnect.

Duration: 43 minutes

Call participants:

Theresa Womble -- Director of Investor Relations & Assistant Treasurer

Francis Malecha -- President & Chief Executive Officer

James Standen -- Chief Financial Officer

Vincent Anderson -- Stifel -- Analyst

Ragnhild Stoeer -- Goldman Sachs -- Analyst

Mark Connelly -- Stephens Inc -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Christopher Shaw -- Monness, Crespi, Hardt & Co. -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

Graham Wells -- Credit Suisse -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool recommends Compass Minerals. The Motley Fool has a disclosure policy.