Compass Minerals International (CMP 8.07%) has traditionally been a seasonal business, with much of its revenue coming from its sales of road salt and other winter-weather-fighting materials. Having dealt with a production slowdown following labor action at its Ontario plant in Canada, Compass didn't see the better results it had hoped for last quarter, even as better winter conditions than the company has experienced for the past several years seemed to be working in its favor.
Coming into Tuesday's first-quarter financial report, Compass investors were prepared for the company to just barely break even on much weaker revenue. Compass did suffer a big drop in sales, but better profits pointed to the potential that more normal winter conditions could bring a full recovery for the salt and plant nutrition producer.
Compass celebrates a successful winter
Compass Minerals' first-quarter results weren't ideal, but they weren't as bad overall as some had feared. Revenue plunged 8% to $403.7 million, which was slightly worse than the 6% top-line drop that those following the stock had expected to see. However, net income came in at $7.6 million, and the resulting earnings of $0.22 per share were far better than the consensus forecast among investors for just $0.01 per share of profit.
The big winner for Compass was its salt business, which provided about three-quarters of the company's overall revenue. Segment sales were down 3% due in large part to a substantial 14% drop in volume of products sold. However, Compass was able to get much better pricing on its products, seeing average selling prices surge 13% from year-ago levels. The company said that winter conditions in North America were better than average, with 12% more snow events than the 10-year average. Unfortunately, mild conditions in the U.K., where Compass also does business, offset some of those gains. Overall, though, Compass said that it probably got about $8 million to $10 million extra in operating earnings during the first quarter as a result of a good finish to the season.
Unfortunately, Compass' plant nutrition business took some damage in part because of the same weather impacts. Wet and cold weather throughout many key agricultural areas in North America contributed to a 30% plunge in that region's plant nutrition segment revenue, sending the division to a modest loss for the quarter. The South American side of the business didn't do much better, with revenue dropping 13% on weakness in the Brazilian currency compared with the U.S. dollar, as well as lower pricing. Higher raw materials costs and planned maintenance operations sent the region's bottom line negative as well.
Interim CEO Dick Grant celebrated the news. "Improved production at both of our North American salt mines as well as favorable logistics and commercial execution throughout the salt business enabled us to capitalize on above-average winter in North America and generate sales and earnings above our expectations," Grant said. The CEO noted that those favorable results "more than offset the softness experience in our plant nutrition business."
Can Compass Minerals make a full recovery?
Compass believes it can overcome its remaining obstacles to restore growth. In Grant's words, "We are encouraged by the outlook for the sale business in North America, and while there are challenging market conditions facing the agriculture sector in North and South America, we believe we're well-positioned for success as market conditions improve."
Compass will also have a new CEO at the helm. Kevin Crutchfield will take on the role on May 7, bringing experience from the coal mining industry to help the company move forward.
Looking ahead, Compass sees more favorable pricing and performance helping salt division results in the second quarter. Moreover, the tough winter should improve bidding conditions for the 2019-2020 winter season, requiring customers to order more salt to replace used-up supplies. However, a shorter growing season in the U.S. led the company to cut its outlook for North American plant nutrition products. A boost of 500,000 tons in salt was offset to some extent by a cut of 10,000 to 20,000 tons of fertilizer in the North American market.
Compass Minerals shareholders didn't react immediately to the news, leaving the stock unchanged in after-hours trading following the announcement. Challenging conditions will persist for the diversified company, but at least Compass has gotten the salt side of its business back in the running for stronger growth in the years ahead.