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Compass Minerals International Inc (NYSE:CMP)
Q3 2019 Earnings Call
Nov 6, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

[Operator Instructions] Good day and welcome to the Compass Minerals Third Quarter Earnings Conference Call. [Operator Instructions].

At this time, I would like to turn the conference over to Theresa Womble, Director of Investor Relations. Please go ahead.

Theresa Womble -- Director of Investor Relations & Assistant Treasurer

Thank you. This morning, our CEO, Kevin Crutchfield and our CFO, Jamie Standen will review Compass Minerals' third quarter results. As well as our outlook for the rest of 2019. During the question-and-answer period. We will also have available Brad Griffith, our Chief Commercial Officer.

Before I turn the call over to Kevin. 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's date November 6th, 2019 and involve risks and uncertainties that could cause the company's actual results to differ materially. Please refer to the company's most recent Form 10-K and 10-Q for a full disclosure of these risks.

The company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. Our remarks also may include non-GAAP financial disclosures, which we feel are important to provide a full understanding of our business and operating conditions.

You can find reconciliation of any of these measures in our earnings release or in the earnings presentation, both of which are available in the Investor Relations section of our website at compass minerals.com.

Now I'll turn the call over to Kevin.

Kevin S. Crutchfield -- President and Chief Executive Officer

Good morning, everyone. I'll begin today with a brief review of some of the highlights of our third quarter results. Then discuss the path, the senior management team and I have defined for moving forward to build a better Compass Minerals for our customers, employees, communities and shareholders.

Before I do that, I'd like to take a moment to address a fatal incident that occurred at our Cote Blanche Mine in mid-August when Shawn Clements, the contractor at the mine contacted a live electrical cable while working inside the fire suppression systems electrical panel.

We would once again like to extend our sincere condolences to his family.

The safety of our workforce is our top priority and incidents such as the one which claimed to Mr. Clements life are unacceptable. Coming from a long career in mining. I also believe it's imperative that we take the necessary time and actions to learn from these tragedies in order to prevent them from happening again.

As such, I've been impressed with the manner in which our Cote Blanche team has responded reviewing the circumstances that resulted in the accident in order to minimize future risks and sharing those learnings across the enterprise.

Operationally, the mine was offline approximately 3 weeks beginning in mid-August. As a result of the investigation of the incident, but our Cote Blanche team is expected to recoup the loss production before the year-ends. Turning to this quarter's financial results. I'll just say upfront they are disappointing to me and our leadership team while consolidated revenue increased 6% to completely to year-on-year improvements in our Salt business.

Our operating earnings and EBITDA declined. We had a challenging quarter in Brazil where uncertainty in global agriculture markets has reduced farmers' appetite for many of the specialty nutrients we sell. While in North America we eked out modest gains in our SOP sales volumes.

The bright spot with our Salt business were stronger year-over-year demand for preseason stocking of deicing products lifted highway deicing and Consumer & Industrial sales volumes compared to the third quarter of 2018. And strong highway deicing prices in North America raise Total salt average selling prices, higher than expected costs however limited our earnings growth.

I'll speak more to those results shortly.

We're also reporting our final North American highway deicing bid season results which are described on slide 4 of our earnings deck. We increased our bid volumes, and additional 3% from what we reported last quarter, which brings the total increased to 18% over the 2018-2019 winter season.

I'm pleased to also report that our Salt team achieve this additional increase while still maintaining the plus 8% average selling price. We announced in August. Just as we stated last quarter, we've achieved a total price improvement over the last 3 bid seasons of plus 22%, though commercially speaking things remain on track for the Salt business. From a production perspective, we faced some challenges in the quarter. In addition to the downtime Cote Blanche we had to work through some difficult geology at Goderich which slowed our production rates compared to what we achieved in the second quarter.

Even with those challenges, we still improved production through the first 9 months of the year by 34% compared to 2018 results. We've also taken the deliberate approach to settling outstanding labor dispute to Goderich, I believe this is critical to our long-term success, a strong partnership with our employees is and must be a focus for us. The good news at Goderich is that the focus we've placed on corrective actions to mine more efficiently and the efforts to improve our labor relations are bearing fruit.

We had an excellent month of production in October, even exceeding our targeted production rates. In fact, it was a record production month within the current fleet the Goderich and demonstrates what this mine is capable when everything comes together. Given that, I'd like to congratulate the team there for an outstanding month.

Because of their efforts, we can report that. At the end of October, our year-to-date production at the mine was a strong 40% ahead of last year's result for the same period. That said, one month does not a year make, but we're also taking definitive steps to build on this success. We're using ground-penetrating radar along with in-seam, horizontal drilling to explore both existing and future mining areas and reconfiguring the geometry of current mine panels to better accommodate a continuous mining and haulage systems.

This work is part of initial stages of implementing a new long-term mine plan at Goderich. Some of the broad-brush strokes are provided on slide 6. What you see here is in the illustrative representation of how we plan to evolve the mine over the next few years. This plan is designed to maximize the productive capability of our continuous mining systems. We should also reduce maintenance costs related to the massive abandoned and previously mined areas while improving safety and provide operational flexibility throughout the various mining districts.

This flexibility is key and we will make it easier to respond to solve deposit quality and consistency issues that can always emerge in any mine. While this is a multi-year project, we're beginning to institute the new mine panel shape, which you can see here and the call our graphics instead of rooms and pillars oriented at right angles we're modifying to more of a Chevron pattern with 60 or 70 degree angle advances, which we believe through past experience will work much better with the flexible conveyance systems we have in place here at Goderich.

Another key feature will be the new bypass road area where we will have permanent built for purpose roads and entry ways leading to and from the mining industry. Significantly reducing travel time and shortening the distance out of the mine. Importantly, these roadways will be easier to maintain and safer for our miners. As we further develop our long-term mine plan. We'll share more details regarding timing and related spending. Importantly, we expect to be able to complete this work and keep our total ...capex in the $90 million to $110 million rate. Now turning to our Plant Nutrition business, we continue to face challenging market conditions. In North America, our SOP business has held fairly steady. But our micronutrient business has lagged due to the significant reduction in acres planted due to poor weather conditions earlier this year.

In South America, the lack of clarity on China-U.S. trade has prolonged uncertainty resulting in delayed decisions by farmers or even skip to nutrient application altogether in some cases. In addition, Asian swine flu has pressured demand from China, you can see the price chart on slide 7 for Brazil soybean which is indicative of the weaker grower economics these pressures have mainly impacted our business to business sales, which serve smaller growers through the distribution channels.

Our direct to grow our business actually increased modestly versus 2018 results and we expect this portion of the business to remain strong in the fourth quarter. Before turning the call over to Jamie I'd like to spend a few minutes discussing our approach to setting up Compass Minerals for the future.

It's clear to me that there is immense potential within Compass Minerals for organic growth and operational improvement. Significant investments have been made in this company, and less than stellar execution has prevented us from achieving the appropriate level of returns on these investments. Our focused over the next 18 months, will be twofold.

First, we will work to become an execution machine and push to deliver on the promise of the investments we've already made. Second, as our results and our balance sheet, improve we'll be able to better define what our long-term direction will be. We outlined the process will be following on slide 8.

First, we're conducting a top to bottom review of all our operations in business is looking for every value generating opportunity available to us. We call this enterprisewide optimization next we'll announce the pertinent details of the plan and began executing on it. We expect to begin delivering improved financial performance as a result of this plan in 2020. As these business improvements and organic growth opportunities materialize we'll begin discerning what we want the Compass Minerals of the future to look like.

Consequently, we would expect to have a thorough strategic discussion externally later in 2020. Throughout this process, we will provide updates on our progress in an effort to be as transparent as possible with our investors today I'll share that we're making great progress on Phase 1. We've completed the review, think of it like an organizational MRI of sorts and have identified several key value streams where we will be focusing our efforts. We're employing a bottom-up process involving everyone in the organization to generate the initiatives within the plan that will foster broader improvements throughout our organization.

We expect to announce more of the specifics of this optimization plan early next year. Very enthusiastic about the work we've done so far and impressed with the energy and engagement of our employees have already brought to bear in this process and I'd like to thank them all for their hard work today.

Now Jamie will walk through the financial details of the quarter and the rest of the year. Outlook, Jamie?

James Standen -- Chief Financial Officer

Thanks Kevin and good morning everyone. I'll start with a review of our Salt segment results, which are on slide 10, third quarter 2019 revenue for this segment increased 16% from prior year results on 7% volume growth and 9% higher average selling prices. Volumes grew in both the highway deicing and consumer and industrial businesses, primarily due to more preseason stocking orders compared to the 2018 third quarter.

We also had some sales pushed into the third quarter from the second quarter due to shipping delays caused by Mississippi River flooding. The 9% improvement in salt pricing was driven by better highway deicing prices, which increased 22% on a combination of improved highway deicing contract prices and a lower mix of sales to chemical customers compared to the prior year.

Consumer and industrial average selling prices declined 2% due to year-over-year changes in product sales mix. So all in all, we had a solid quarter from a revenue perspective. We also generated significant year-over-year operating earnings and EBITDA growth but as Kevin stated, it was less than what we were targeting.

There are several key factors that pressured salt earnings growth this quarter. First as Kevin mentioned we encountered some tough geology at Goderich mine during the quarter that slowed our pace of production. This lower than expected production depressed our results by about $6 million in the quarter.

The good news is that the ground-penetrating radar. We've recently begun using should be a powerful planning tool going forward. This will help us avoid impurities that it is historically been encountered from time to time second downtime at the Cote Blanche Mine also resulted in lower than expected production in the quarter and reduced earnings by about $3 million. We do expect to make up that production in the fourth quarter. So this is just a timing impact. Finally, executive transition costs and a proactive decision to settle some labor disputes at Goderich resulted in a total charge of about $3 million.

If not for these items this quarter, we would have handily outperformed prior year results even after adjusting for the 15 million in Goderich strike related impact we called out last year. I'd also like to note that our UK Salt business EBITDA was a couple of million lower this quarter compared to 2018 due to lower year-over-year production rates following the very mild winter last season.

Obviously, we would like to have achieve better results in the Salt business but as Kevin said the focus we have placed on corrective actions to mine more efficiently at the Goderich mine are already yielding benefits as seen in the very strong production results in October.

And our Cote Blanche Mine has also been performing at or above plan coming out of its outage both of these are great signs for the Salt segment overall. Turning to slide 11, the Plant Nutrition North America segment delivered 6% revenue growth compared to the 2018 third quarter driven by an 8% increase in sales volumes partially offset by a 3% decline in average selling prices.

Operating earnings and EBITDA both increased as a result of lower production cost and revenue growth. I would also like to note that logistics costs in the quarter were higher versus prior year due to less favorable geographic sales mix and increased warehousing costs.

Our third quarter Plant Nutrition South America results found on slide 12 we're broadly down versus the strong third-quarter results of 2018. Third quarter 2019 revenue declined 4% on volume and price weakness. Agriculture revenue dropped 5% from third quarter 2018 levels driven primarily by lower B2B sales to distributors, although importantly we saw an increase in direct to grow our sales we believe our agriculture sales this quarter were pressured by delayed planting, trade uncertainty and weaker farmer economics in Brazil, which tend to have a larger impact on the smaller growers ultimately served through our B2B channel.

Our larger more sophisticated grower customers are still investing in our yield enhancing products even in a less favorable agriculture market. Chemical solutions revenue for this segment was flat compared to prior year on a 14% increase in sales ag, offset by a 12% decline in average selling prices.

As we previously discussed. This business continues to sell higher volumes of low priced water treatment products compared to prior year as many states and municipalities are looking to spend less on water treatment solution. Unfortunately, we also saw some margin compression this quarter in the agriculture business as the modest price lift was more than offset by higher unit due to raw material inputs and lower production levels it's also important to note that we continue to invest more each year in our sales force, agronomy expertise and marketing efforts to drive strong growth going forward. All these things together resulted in a 28% decline in operating earnings and a 22% decline in EBITDA compared to the prior year quarter.

We begin discussing our fourth quarter outlook on slide 13 with a look at expectations for each of our segments. For the rest of the year. Given the strength of our North American highway deicing bid results we expect low teens salt revenue growth compared to the fourth quarter of last year.

Remember that our bid season results impact only about 2/3 of our overall highway deicing business. The remainder is shaped by our bulk sales to chemical producers and our UK Salt business in both of those businesses, we expect lower sales volumes versus prior year. Our sales to chemical customers have been reduced.

As we have prioritized our constrained supply on higher margin deicing customers. Given the improved pricing environment increased volumes and significant improvements in operating performance at our North American salt mines. We expect fourth quarter 2019 EBITDA growth of between 40% and 50% versus prior year.

Where we fall in that range will ultimately be determined by how winter weather unfolds and our ability to continue hitting our planned production rates at our North American mines.

Both Plant Nutrition segments are dealing with some demand challenges and we've reduced our full year volume outlook for each to take into account third quarter results and the fact that we don't expect to recover all of the lost sales by year-end. In North America we expect a strong fourth quarter of SOP sales but micronutrients are likely to remain challenged. In South America, we expect earnings growth in the fourth quarter versus prior year as we believe a combination of delayed plantings and trade uncertainty pushed buying decisions into the fourth quarter.

The shift is also expected to improve the segment's EBITDA margin compared to prior year results. As we expect to sell more of our higher value full year products. It's also important to note that in this segment, we do expect a 5% to 80% [Phonetic] currency translation headwind in the fourth quarter when compared to prior year.

Our full year consolidated outlook is provided on slide 14. As noted in our press release, we've reduced our full-year EBITDA outlook to take into account the weaker results and outlook for the Plant Nutrition businesses. Before beginning the question and answer session. I'd like to touch on our leverage and

Kevin S. Crutchfield -- President and Chief Executive Officer

...free cash flow expectations. Given our lower EBITDA outlook, we now expect to generate between $80 million and $90 million of free cash flow this year, but expect a very large step-up in 2020. We also expect to in the year with an adjusted net debt leverage ratio of about 3.9 times.

Lastly, it's important to note that all of these estimates exclude the benefits that we believe will come from the enterprise wide optimization plan, we are in the process of deploying while we aren't quite ready to discuss the value of the internal opportunities we've identified.

We are confident that our new operating structure strengthened mining capability and recent success executing the basics day in and day out will serve as the foundation to execute our optimization plan over the coming months and quarters.

With that, I'll now ask the operator to begin the Q&A session. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions]

We will now take our first question from Joel Jackson with BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good morning everyone.

Kevin S. Crutchfield -- President and Chief Executive Officer

Good morning.

James Standen -- Chief Financial Officer

Hi Jamie, hi

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, Jamie. Kevin, I want to discuss the geologic the geology issues you've been facing maybe going back to some of the problems that we saw at Goderich a year or two years ago over fines or maybe some of the particle break distribution part distribution. Can you talk about, is this just straight geology or is this related to how you are now managing your with the continuous miner versus drill and blast before and wasn't the optical sorter supposed to fix a lot of this, or is this a new issue. Thanks.

Kevin S. Crutchfield -- President and Chief Executive Officer

Yeah, that's a good question, Joe. So the optical sorters are designed obviously to parse the separate small rock particles from the Salt particles and launch, you have a mixture of those two, those machines are operating just fine. What we hit in the third quarter was actually more of a geologic an anomaly.

It was a, an intrusion of mineral we call anhydride and that's why we've engaged the ground penetrating radar is to really understand the extent and breadth of this formation because we don't want a mine where that exist. It's not a profitable venture is very difficult, very hard on the machines and optical sorters don't work when you're in those conditions, because the level of reject materials are non-salt materials is just too high for the optical sorters to function. Not withstanding the difficulty on the mining machinery itself. So we've got a good handle so far just through the ground-penetrating radar that technique that we've deployed, we're also going to start some horizontal drilling probably this weekend to better define that feature, because we want to set up as we're working toward this long-term mine plan, we want to set the mine up in such a manner that we avoid those kinds of areas.

So in the process of determining what that looks like look the bad news is one of the units had a tough quarter in that material. The good news is as we are defining it and we can avoid those areas in the future, which we think will result in much better performance than what we saw in the third quarter, which as I said in the prepared remarks as well as in the press release were disappointing from our perspective.

Joel Jackson -- BMO Capital Markets -- Analyst

Okay, thank you for that. And in South America. I know, Kevin, this may not be fair because you're going to go through a process here and you have now been at this company for several months. When you look at that South American business, it certainly is not meeting the types of double-digit growth CAGRs and targets that the management team wanted some years ago on the acquisition -- is -- when you look at this, your gut feeling is, does this business stay intact, you need to cut it up -- is some things you can do to acquire to make it better and what is your gut on that?

Kevin S. Crutchfield -- President and Chief Executive Officer

Yeah, good question. So our job one, the way we're looking at it Joel is to make the company run to its full potential and stay focused on execution. I think it would be fair to say that we've had some execution problems here in the past. I mean I really believe that there is a lot of pent-up potential inside the company, both across Salt and Plant Nutrition businesses where we can realize better results, better execution, better performance and once we get the company kind of stood up and running to the degree we believe it's possible, then I think that's when we're going to begin working through more of a strategic discussion internally with our Board and then begin having that discussion externally.

So I don't want to front run anything at all. I think it's kind of first things first, let's get the company running at its full potential. We've got a lot of work to do there, but again continue to be very, very encouraged about the internal potential that exists here from, just from a transformation perspective and where we're knee-deep into that work right now and look forward to sharing our thinking on that early in 2020 just to try to paint what we think the potential the company does look like. So that everybody is on board with where we're going.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you.

Operator

[Operator Instructions] We'll will now take our next question from Christopher Parkinson with Credit Suisse. Please go ahead.

Christopher Parkinson -- Credit Suisse -- Analyst

Great, thank you, kind of a corollary of the last question, but you Kevin. Now that you've had a few quarters in your -- evaluating the situation at Goderich. What have ultimately been the biggest surprises in salt mining versus your past experience and we're ultimately -- does your past experience enables you to truly 6 the issues, I mean it just seems like a lot, still in flux. But I just want to get a sense of your degree of confidence in your ability to truly turn everything around. Thank you.

Kevin S. Crutchfield -- President and Chief Executive Officer

Well, look out. I will say my degree of confidence in our ability to turn this around with the -- changes we've made on the operating side, I believe, is very, very high, things that are, I think it should come a little more natural to us haven't come is natural to Goderich.

So I think as I've said before, we didn't get where we are overnight. We won't get where we need to be overnight either. It's a process, it's a continuum but we're taking very definitive steps here on the development of this long term mine plan is illustrated in the slides to set this mine up for the next 50 years.

And while I understand the pressure of demonstrating some results quarter-on-quarter and we're completely focused on that. We do want to be focused on the long-term mine plan here too, because we are setting this thing up for the next 50 years or so, I think through a combination of better maintenance practices, better utilization, better availability coupled with mining where there aren't geologic anomalies then coupled with the institution of this new room-and-pillar system that set up more on -- it was as opposed to 90-degree angles and then ultimately setting up these long-term road ways where we can create these rooms where we mined for 4 to 6 years and then shut them off permanently you don't have all these ground control costs, I think will manifest itself in truly a world-class to world-class reserve already truly manifest itself in a world-class asset that's performing at world-class levels.

So we've only scratched the potential of where Goderich can be long-term. But just to reiterate my confidence level in our team's ability to get this mine running it that world-class level is exceptionally high.

There's not a doubt in my mind, we will get there.

Christopher Parkinson -- Credit Suisse -- Analyst

It's very helpful and just clearly '19 isn't the benchmark you want investors to think about the [Indecipherable] . But could you just give us an update on your confidence also on this front and for your portfolio positioning distribution, your transportation logistics capabilities, so just without the concept of any portfolio action just what are the key puts and takes that we should be thinking about as we head into 2020 and even 2021, it seems like there are a lot of efforts to recalibrate the growth in the margin profile?

So just scrap in the near term. How should we, this thing about this intermediate to long-term. Thank you.

Kevin S. Crutchfield -- President and Chief Executive Officer

On the Salt franchise is that your question?

Joel Jackson -- BMO Capital Markets -- Analyst

No. Sorry for the -- for the Brazilian business.

James Standen -- Chief Financial Officer

Yeah, let me start with that maybe. So this is a tough year, obviously, with trade uncertainty, African swine flu, China demand, there are a number of factors. Fundamentally, we feel very good about the long-term growth profile of our South American business. The key competitive position that it has in the marketplace, it's a market leader as -- all of our businesses. So we feel very, very, very good about our B2C business as well. So we continue to think about top line growth in the 10% area over the longer period of time and that kind of low-to-mid teens earnings growth potential as well.

Now, it's going to ebb and flow we've seen, when we bought the business we had a flat year. We bought it in '16, had a flat year in '17, demonstrated about 20% growth in 2018, now it's dealing a bit flattish again in local currency. That's frustrating, but I think the real focus and the potential down there is twofold, it's in our B2C category, which may be Brad can add some color to. And then this enterprisewide optimization program will really help us achieve at those earnings growth levels. We see a lot of opportunity through global sourcing, through sales force efficiency, there is a lot of things. Brad, do you want to talk a little bit about B2C?

Brad Griffith -- Chief Commercial Officer

Yeah, sure. Thanks, Jamie. Christopher, hello. And just building on Jaime's comments. When we look at our direct-to-farm business, internally codenamed B2C. We are seeing over a three year CAGAR that 20%, 22% range of performance in terms of operating income. And I think when we look even at 2019 year-to-date, given the difficulties that Jamie outlined in terms of global trade uncertainty, the African swine fever, piece barter [Phonetic] rate behind where farmers were in 2018, that business is still looking to grow about 11% year-to-date and we expect it to grow stronger. So when we look at our competitive peer group through [Indecipherable], we are about two times -- just over two times the industry average in terms of expected growth.

So we feel very good about the investment thesis that we made in Brazil. Our direct-to-farm business year-to-date accounts for about half of our Brazilian business revenues and over 60% of our operating income. So I suppose in poker terms, we want to feed the hot hand. And we certainly feel like our direct-to-farm approach is that hot hand On the B2B side, that's where we kind of felt some of the pressure exacerbated by the kind of environmental topics that we spoke about a little bit earlier. Our customers are having a challenging time. We have small customers who have large commercial customers, we sell them raw materials, intermediates, and finished goods and when they're feeling the pain -- they buy less from us. And so I think as we look at our portfolio and recalibrating that portfolio in our resources and making sure we're able to feed the hot hand without incurring additional expense. That's how we look at enterprise optimization and it's a significant opportunity for our entire business.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you.

Operator

We will now take our next question from Vincent Anderson with Stifel. Please go ahead.

Vincent Anderson -- Stifel -- Analyst

Thanks, good morning.

Kevin S. Crutchfield -- President and Chief Executive Officer

Hello.

Vincent Anderson -- Stifel -- Analyst

Hi. I wanted to go back to geology just for a minute. So how far out can you really get with ground-radar and horizontal drilling and is the plan in the new mining districts to make one long cut into each new panel and sample out along the Chevron's, and then maybe a long shot here, I know you are long ways away from Michigan, but is there any reliable geological work that's been done on the other end of the reserve, and anything you can glean from it with regards to the consistency of the ore grade at least at the book ends of the deposit?

Kevin S. Crutchfield -- President and Chief Executive Officer

Hitting the last part of your question first. I don't know the answer to that question, that's a good point would be worth looking at. If you look at the end of the day, what horizontal drilling tells you is what's in that core. But you can and if you sample enough data, you can create a very nice well-defined image of what your ore body looks like that coupled with the ground penetrating radar, I'm not sure. Actually, the extent to the link that the ground penetrating radar works because when it hits these anomalous hydride areas, anhydride [Phonetic] areas it will bounce back, but we have enough confidence in the technology that we believe it's going to create a very good image for us to very completely understand what's in the area of concern right now, but more importantly what lies across the areas where we plan to lay out future parts of the mines.

Look, this is just mining 101, it's understanding your resource and that's what we're in the process of doing right now is understanding the resource and as a consequence, that is what will drive -- what the long-term mine plan looks like to ensure that -- you can never 100% eliminate the chances of having geologic anomaly, but you can certainly mitigate those circumstances to a great degree by deploying the technologies that we're talking about here. So I think a very high level of confidence that we can do that.

And I think -- we're talking about the debt, the penetration on this radars about a mile.[Speech Overlap] excuse me and the horizontal drilling itself we will penetrate a mile. And then we drop off laterals along the way. So that gives you and you can start at the development lift and go all the way down through the forklift that we're mining. So it will really be very additive in terms of defining the resource.

Vincent Anderson -- Stifel -- Analyst

That's very helpful. Thank you.

And just quickly to bring it back to the numbers on Salt. I appreciate the detailed 3Q 19 cost overages you gave, Jamie, how should we think about the hangover in inventories and for the first half of 2020 or was this pretty well contained to 3Q assuming Goderich continues to improve?

James Standen -- Chief Financial Officer

Well, yes. So we're the Salt we made a lot of that did flush through the quarter, we will have it some into fourth quarter. If we continue at the rates were running. As we mentioned running above targeted rates. Our internal planned rates we shouldn't expect to have a significant carry over.

Vincent Anderson -- Stifel -- Analyst

That's great. --[Speech Overlap] Okay. I'm going to sneak one more in, if that's OK. It did look like one of your more French competitors in the eastern U.S. was sitting on some high stockpiles and didn't start shipping in earnest really until fairly late in the third quarter, did you see any pull eastward in your contract book toward the end of the bid season?

James Standen -- Chief Financial Officer

No, not really. We were a bulk of our business was booked when we reported earnings in August. Remember you recall, we were -- yeah, 85% complete. So a lot of our remaining book was commercial I think Brad you would agree, we didn't see a particular pull to these?

Brad Griffith -- Chief Commercial Officer

Incur. Yeah.

Vincent Anderson -- Stifel -- Analyst

Okay, thank you.

Operator

You will now take our next question from Mark Connelly with Stephens Inc. Please go ahead.

Mark Connelly -- Stephens Inc. -- Analyst

Thanks. MOP prices have been a little bit sloppy and it feels like SOP is holding up better. Could you talk about the, the economic trade-offs and how confident you are that SOP can hold up even if MOP it doesn't recover from this lousy summer?

Brad Griffith -- Chief Commercial Officer

Yeah, hey Mark, this is Brad Griffith, I like how you characterize MOP. I would say we feel very good about about pricing and the stability of the market. I think what we've seen is based on the unprecedented spring that the United States went through with respect to precipitation of 125-year weather event. There were a number -- there was a significant amount of inventory carryover in the channel. And so, what we're seeing now is we're seeing good demand from our tree nuts [Indecipherable] chloride-sensitive crops in the Southeast. But also now in the Western U.S. and in the Pacific Northwest. So it's very good to see those areas coming online. The almond harvest is probably about anywhere from two to four weeks delayed from what we typically see in an average year and it's been an extremely resilient crop as it pertains to exports stability. The EU is still strong, India is still strong. So I think that those export data points as well as just internal demand for the crops that really given its -- given SOP a good pricing footing.

Now having said that, Mark. We've said in the past, we will continue to price dynamically to the market. We have a significant share of the North American market and we certainly intend to ensure that, that continues to be the case. I think we also feel very good about our cost of production in our Ogden asset. We've been able to -- we've had a good harvest, that we've been able to use our [Indecipherable] to get attractive margins thus far.

Mark Connelly -- Stephens Inc. -- Analyst

Fantastic. Just one question maybe for Jamie. I think investors want to hear that you can keep your capex in that $90 million to $110 million range. But they know you're spending more on these heavy pieces of equipment. So, can you remind us, some of the puts and takes in the overall capex spend, that's allowing you to stay in that range, even as you proceed through these big new initiatives?

James Standen -- Chief Financial Officer

Yeah. So we're focused on finding the perfect amount of MOP [Phonetic] maintenance spend, which we believe is in the $70 million to $80 million range for this business. So if we're going to be running in the $90 million to $110 million, out in the future as we go through this long-term mine plan, we think there is plenty of flexibility there to make some adjustments even on the MOP [Phonetic] side to absorb some of the bulkiness that may come with the longer-term mine plan, which we haven't outlined yet. We don't have any specific line of sight on the timing exactly of that. But because of that MOB [Phonetic] level and that targeted range of $90 million to $110 million, we believe we can fit it in there.

Mark Connelly -- Stephens Inc. -- Analyst

That's great. Thank you.

Operator

[Operator Instructions] I will now take our next question from Bob Koort with Goldman Sachs. Please go ahead.

Robert Koort -- Goldman Sachs

Hi, everyone, this is Tom Ludski [Phonetic] on for Bob. So first just touching back on Salt unit costs so transportation cost per ton were down around 20% quarter-over-quarter. Could you just walk through the drivers there and was it mainly just weaker volume in 2Q and are there any larger factors at play. Thank you.

Kevin S. Crutchfield -- President and Chief Executive Officer

Are you in salt? I'm sorry.

Robert Koort -- Goldman Sachs

Yeah. [Speech Overlap]

Kevin S. Crutchfield -- President and Chief Executive Officer

Yes. Okay. Yes. So not showing down 20%.

Operator

So you're talking about logistics cost just in the Salt segment? Are you talking about sequentially or year-over-year? [Speech Overlap]

James Standen -- Chief Financial Officer

Sequentially, so sequentially we always see what we always see a decline. I think the better way to look at salt costs would be year-over-year because of the really mix activity of what we're shipping in the third quarter versus the second quarter so in the third quarter we see a tick up in highway deicing shipping right as we do, our pre-fill activity, so we tend to see lower lower shipping cost in the third quarter.

Yeah. The other piece of that would have been some, there was some Mississippi River flooding impact that we incurred in the, it was about $2.8 million of cost in the second quarter that would have run through distribution costs.

Tom Glinski -- Goldman Sachs -- Analyst

Okay, that's helpful. And then second, just going back to the labor discussions at Goderich, could you give any color on just what the conversations with employees, it sounds like and maybe how you see that progressing in the next year?

Kevin S. Crutchfield -- President and Chief Executive Officer

Yes, sure. I mean, as we talked about we resolved a fair number of outstanding disputes that had been laying around up there for some time and myself and our new Chief Operating Officer, George Schuller along with the management team there at the mine have been working very diligently with the union leadership there as well as our employee base to try to set some mutual goals together, how we can work together well continue to resolve disputes, not allow things to get to the grievance category but because at the end of the day where we're, it's a partnership up there, they are our partners and we can't do what we need to do without them, they can do what they need to do without us. So it is a partnership and what we're trying to do is reforge that relationship and create that partnership so we can work together to solve problems because as I have shared with them and George as well a safe profitable productive Goderich is good for everybody around the table.

So look, it's just, it's pretty basic at the end of the day, I think treating people like they wanted to like you'd like to be treated and working with them as a partner. I think we'll will set the stage for better relations going, going forward. Again we didn't, we didn't get here, overnight, we won't get out of this overnight, it will take time and rebuilding some trust, but I believe the proper steps have been taken. And we look forward to continuing forge that relationship.

Tom Glinski -- Goldman Sachs -- Analyst

That's helpful. Thank you.

Operator

Thank you. We will now take our next question from Jeff Zekauskas. Please go ahead with JPMorgan. Please go ahead.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

Thanks very much. And I know October is early and snow season but there were some snow in the Dakotas and some snow in Minneapolis and Chicago. Was any of that was there appreciable snowfall that influence in the fourth quarter because of early snows or no?

Brad Griffith -- Chief Commercial Officer

Now not yet. Jeff, it's, it's too early on that we're seeing are we're seeing really nice pre-fill. So we're excited about that. So snow impact yet. Hey, it's nice to see it's nice to see it start to get going. But it's not, it's not appreciable yet.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

Okay. And then could you say that your geological issue increased your costs by $6 million in in the quarter?

Brad Griffith -- Chief Commercial Officer

Yes, yes. So the impact of producing fewer tons in the quarter because of the geology create the way we account in the wafer for our cost to come through our P&L that impacted in the current period.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

Okay and then lastly, in terms of your capital expenditure expectations in the future where you were you in effect, saying that you're optimization program could cost you as much as $20 million annually in capex or were you not saying that? Because you to get to that $90 million to $110 million number as a normal number.

Brad Griffith -- Chief Commercial Officer

Well, what we're saying is, there are a number of opportunities to invest internally, right to generate higher profits the maintenance of business, let's call it that $75 million. I said $70 million to $80 million, you've got other opportunities to invest along the way. And we should be able to absorb any impact related to our long-term mine plan.

So it's not the long-term mine plan capex is not the difference. There are other items that will come through there over time.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

So you're optimization program is not a capital intensive? Optimization program. It's more operational? Is that what you are saying?

Brad Griffith -- Chief Commercial Officer

Yeah. Yes, I'm sorry, yes. So it is mostly operational there is, there are opportunities that will identified that will require some capital but and we'll give more clarity and color about that but certainly the things that don't require any capital and can be done quickly, we'll do as quickly as we can and that will drive higher profitability and generate more cash flow to make incremental investments in the business.

So yeah, I would, I would categorize it as operational first but there we will identify opportunities to invest.

Kevin S. Crutchfield -- President and Chief Executive Officer

And then in terms of how we allocate that amount will figure out what we can forward to spend and I think as we've talked about, we've kind of a pretty good idea on what that range is and then we'll look at all the opportunities, all the projects and rank them in order of payback, return, etc.

And then when the capital is gone, it's gone, and then we will enter the phase for the next period, so there is a very disciplined approach and process in place there that we will deploy going forward.

Operator

Thank you will now take our next question from Chris Shaw with Monness, Crespi. Please go ahead.

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

Hey, good morning everyone.

Kevin S. Crutchfield -- President and Chief Executive Officer

Good morning.

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

Coming back to Brazil for a second. Just on your B2B business I guess in Brazil, I think people get worried when I think distributors sort of dial back. Is there any sense that this is the channel inventory issue, particularly given that the B2C is doing better of how they maybe over bought in the past is have too much inventory or do you not, are you not seeing that?

Brad Griffith -- Chief Commercial Officer

Hey Chris Brad. Again, I think that's a great question. You know, when we look at our B2C business like how you delineated those two segments on our direct-to-farm business, we call that POG. So we get product on the ground through that team and it's not sitting in -- distribution is not sitting in warehouses.

So the statistics that I named earlier. So that is product that is getting on the farm, getting used in crop. On the direct to sort of commercial side of the business, which could be commercial customers and competitors. I think that it's less that they have a significant amount of inventory. I think that there is certainly some inventory in the channel, but it's not what I have seen in Brazil in prior years from other players. I think it's just more of concern around market demand and as some of the global uncertainty in terms of how aggressive producers are going to be in terms of of managing their inputs and share of wallet.

So I sense that that's more, more of the situation and more on the uncertainty side of things, versus sort of a, a channel epidemic, if you will.

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

Okay, thanks. And then just shifting back to Salt. I guess more of a longer-term conceptual question as Goderich I guess in all operations continue to improve in you're producing more volumes and what's the thought going ahead in terms of I guess like market share and volume versus price. I mean how do you, how do you see that going forward, are you going to try to get more volume out there to I guess a couple [Phonetic] of . ...the mine or is, don't want to flood the market -- sacrifice of prices. You have a philosophy going ahead?

Brad Griffith -- Chief Commercial Officer

Yeah, fair point because we always want to try to achieve fair value for our products. So to the extent that we are successful in taking Goderich to its potential, which are fully believe we will be the first absorption that will occur. There will be the import side.

So we will lose the expensive buying import salt which would be a margin expansion exercise in and of itself. And then from there, depending on what kind of volume. We ultimately decide Goderich ought to be and then we can think about longer market reach as opposed to stealing market share in the current, the current market.

So it will give us a longer reach because you have the cost structure to be able to do it relative to where we are now. So that's how we're approaching it over a gradual period.[Speech Overlap]

And I wanted to this. Hang on just a minute that's why the line is open. I want to clean up some comments that I made earlier, specific to geology defining it. So on the horizontal drilling, we can go kind of [Indecipherable] in any direction. And is that mentioned drop laterals off. So that gives you a good view of what's in that. And then the ground penetrating radar is maybe 100 meters or so, something like that with a little bit more, even more definition.

And then the question around Michigan. While I think the data about what's happening in Michigan is interesting and helpful as it relates to defining the sort of the breadth and perspective of the reserve base. What we're focused on is localized geologic issues that impact day to day decisions month to month decisions and setting up the long-term mine plan.

So I just want to be on record kind of cleaning that up relative to what I said before, just, so it was clear.

Operator

I will now take our next question from David Begleiter with Deutsche Bank. Please go ahead.

David Begleiter -- Deutsche Bank North America -- Analyst

Thank you, Kevin, a thing on highway deicing issue, you just mentioned, perhaps a longer market reach versus steel and market share. What's the difference between those two, since it's so both involve taking someone else's business at the end of the day?

Kevin S. Crutchfield -- President and Chief Executive Officer

Yes, that's a fair point. But I think when I think you think about it from a cost structure perspective. And look, we're not talking about steel and market share in Europe or something I just talking about moving over maybe a state or a state and half potentially in Eastern westward Eastern or West or Western reach and when we achieve the cost structure there that we think is possible, it will become an option to it not option to us. I'm not saying that we will look at the economics of it. And does it make sense to do it or does it not. So we will approach it from a margin perspective. Does it grow margins is the incremental ton, worth pushing pushing it out extra distance? Are we happy with sort of the served market that we're, that we're in now. It will be a high-class problem. When we get to have that discussion for sure relative to where we've been, and look forward to having that discussion internally when when it presents itself.

David Begleiter -- Deutsche Bank North America -- Analyst

Got it. And this year is 80% increase in bid volumes recapture all this year you've loss of last few years due to some operational issues?

Kevin S. Crutchfield -- President and Chief Executive Officer

So we've, we've recaptured. A lot of our share. We think that there is a little bit more to go, because you'll recall when we, when we took our commitments down back in 2018. That was, that was coming off of two mild winters, so the market kind of came back and we reduced our commitments.

So we believe there is a bit more to go not a lot. We've got most of it back.

David Begleiter -- Deutsche Bank North America -- Analyst

Thank you.

James Standen -- Chief Financial Officer

Yeah, Brad, do you want to add a little bit of color?

Brad Griffith -- Chief Commercial Officer

I just want comment it you know as we is Kevin is explained as we become that reliable supplier, what I'm learning from our customers is just how coveted our product is in terms of the product specification as it pertains to other global options. So I think I think we're going to, there's no question in my mind, either that we're going to improve. And there are opportunities on the chemical side of the business, on the Commercial packaging side of the business. In addition to the highway deicing side of the business, our team is sitting on a book of demand right now.

So like Kevin, I like how you term it, it's a first real [Phonetic] problem in and so where we are really looking forward to putting those tons to use.

Operator

[Operator Instructions] Will now take our next question from Seth Goldstein with Morningstar. Please go ahead.

Seth Goldstein -- Morningstar -- Analyst

Hi, just ask one salt question, I know we've talked about a lot today. But over the next couple years, assuming you continue to produce on plan. Can you quantify the continued volume increase in cost decreased, margin impact and so on. And in light of the recent geology issues, is there an updated timeline for when you expect to be at full production?

Kevin S. Crutchfield -- President and Chief Executive Officer

Yeah. You look, we're still in the process of determining what we think full production can be so over that continuum -- we're kind of, I think we said through October, year-over-year, we're up [Indecipherable] 40%. I expect another step function change into of similar magnitude going into 2020 and in 2021. So again, it's going to take some time, because we've got to work toward this long-term mine plan, getting ourselves set up for the future, not trying to prove anything in a quarter for example because you don't want to make a mistake here and compromise 50 years worth of reserves through short term thinking as we work through this, so it's going to take some time, but I'm very confident in the team's ability to generate this mine plan.

And then once we have it in place, we'll be able to execute execute against it.

Seth Goldstein -- Morningstar -- Analyst

Okay, great. And then as we turn to 2020 in the North American business, would you expect a strong rebound in micronutrients and SOP from higher acres planted next year or what's your sort of initial read there ?

Brad Griffith -- Chief Commercial Officer

I'm Brad again. Yes we certainly expect that. And as you know our dry dispersible powder micronutrients take a ride to the acre on the macro nutrients. So as more acres you know are planted and more fertility applied. There is a significant opportunity for our micronutrients to take a ride with those macros to the field an exciting development that we have. We've implemented a systems-based approach to our nutritional products we've branded it as Compass Crops EDGE in the United States and South America, it's called the [Indecipherable] system.

What we see with this is about a 6% to 8% improvement in yields over grower standard practice for fertility and a win rate of 70% and in some cases 80%. So what we know is our products do create value for the farmer and generate a very attractive return on their investments.

So as things normalize. We anticipate, you have to plan for normal, normal weather, if you will. We see more acres, we see acres in the low to mid $90 million range in corn and $85 million range in soybeans, and we have, we have a portfolio for both of those key row crops in addition to the specialty crops where we sell SOP in some of our micronutrients as well, so yes, we are bullish on 2020.

Theresa Womble -- Director of Investor Relations & Assistant Treasurer

Thank you, everyone. I think that's going to be it for the Q&A today. If you have any additional questions please contact Investor Relations. We will be here to answer your questions. Thank you.

Operator

[Operator Closing Remarks].

Duration: 59 minutes

Call participants:

Theresa Womble -- Director of Investor Relations & Assistant Treasurer

Kevin S. Crutchfield -- President and Chief Executive Officer

James Standen -- Chief Financial Officer

Brad Griffith -- Chief Commercial Officer

Joel Jackson -- BMO Capital Markets -- Analyst

Christopher Parkinson -- Credit Suisse -- Analyst

Vincent Anderson -- Stifel -- Analyst

Mark Connelly -- Stephens Inc. -- Analyst

Robert Koort -- Goldman Sachs

Tom Glinski -- Goldman Sachs -- Analyst

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

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

David Begleiter -- Deutsche Bank North America -- Analyst

Seth Goldstein -- Morningstar -- Analyst

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