Seasonal businesses follow predictable patterns. Often, periods of the year when a company doesn't do much business are critical to give it time to build up inventory levels to meet customer needs at other times of the year. Unfortunately, Compass Minerals International (NYSE:CMP) has had some production issues lately, and the net impact has been to hurt it during a key ramp-up season in preparation for the winter months, when its road salt and related products see the most demand.

Coming into Wednesday's third-quarter financial report, Compass investors already knew that internal operational challenges would result in a potential hit. However, they underestimated just how big an impact the company would suffer on its bottom line, and Compass' reassurances that it hopes to get production issues fixed quickly aren't necessarily as reliable as investors would like.

Lake-side factory with a ship docked at the end of a conveyor belt.

Image source: Compass Minerals International.

How Compass fared as winter approaches

Compass Minerals' third-quarter results were mixed. Sales of $322.5 million were up 11% compared to the third quarter of 2017, and that was almost exactly what most of those following the stock were expecting to see. However, adjusted net income plunged more than 40% from year-ago levels, to $12.8 million, and the resulting earnings of $0.37 per share fell far short of the $0.53 per-share consensus among investors.

Looking at Compass Minerals' segments, the salt business continued to play a key role in the company's overall performance. Segment revenue was higher by 10%, as volume growth of 11% offset a 1% reduction in average selling prices. A combination of above-average preseason sales in the U.K. and healthy demand in the North American market helped to boost sales of highway de-icing products by 13% on a volume basis, and pricing was mostly unchanged from year-earlier levels.

Consumer and industrial sales volumes climbed 6%, as demand returned to more normal patterns. However, from a bottom-line perspective, the segment suffered a 46% drop in operating earnings, as lower production levels from the Goderich salt mine in Ontario led to higher costs.

Plant nutrition also saw healthy sales growth, with revenue climbing 12%. The North American region was the weaker of Compass' two plant nutrition segments, with revenue growth rising just 3% as delayed demand for potash fertilizers led to a 2% drop in sales volume. Earnings for the region were flat from year-earlier levels.

In South America, revenue jumped 15% on a 9% rise in sales volumes and strong pricing. Better crop economics in the Brazilian market led Compass higher, although adverse currency impacts moderated the gains to some extent. Operating earnings for South America were up 46%, as higher raw material costs weren't enough to offset the gains from higher sales.

CEO Fran Malecha summed things up nicely. "We are encouraged by the performance of our plant nutrition business," Malecha said, "where our strategic investments to expand and improve our operations are demonstrating their ability to drive top- and bottom-line growth. Our salt segment, however, performed below our expectations." The CEO said that the 11-week strike at Goderich, which ended in July, had lingering effects throughout the period.

Can Compass Minerals bounce back?

However, Compass is more optimistic about the future. As Malecha put it, "We have a plan in place for improvement, and our Goderich employees are working diligently to reach our targeted production rates."

Even more encouraging is how the bidding process in North America for de-icing products turned out. Contract pricing is up 18% from year-ago levels, and that has led Compass to anticipate a 15% rise in salt segment revenue in the fourth quarter. However, with lingering issues at Goderich, Compass sees operating margin remaining relatively stable despite the strong pricing gains. In plant nutrition, favorable fundamentals should send revenue growth higher, as well, with one caveat that investors need to be prepared for currency weakness in Brazil to affect figures there.

Compass kept the guidance it gave about a week ago in its preliminary results unchanged, with earnings expected to be between $2.20 and $2.50 per share. That's $0.55 to $0.75 per share less than its previous range three months ago, but it was good that no further reductions were necessary compared to what the company had predicted more recently.

Compass Minerals shareholders didn't have a strong immediate reaction to the news, and the stock was unchanged in after-hours trading following the announcement. Long-term investors should be pleased with the progress that Compass has made, but many still will want to punish the company for the earnings shortfall until it can demonstrate that it's fully resolved its operational problems.

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