Anyone who drives in winter can appreciate what Compass Minerals International (NYSE:CMP) provides for local governments, with road salt making up a key part of its overall business. Yet Compass Minerals also sells specialty fertilizers and plant-nutrition products, and like fertilizer specialist PotashCorp (NYSE:POT), Compass is vulnerable to poor conditions on the farm. Coming into its third-quarter financial report on Tuesday, Compass investors had to hope that a favorable run-up to the coming winter season would be able to offset weakness that the agricultural industry has experienced lately. Compass wasn't able to thread that needle, posting declines in sales and earnings that were largely unexpected. Let's look more closely at the latest results from Compass Minerals to see whether the winter months might bring brighter times for the company.
Tough ag markets offset record salt income at Compass
The results that Compass Minerals posted for the third quarter came as a surprise to those who had expected the company to continue showing at least modest growth. Sales fell more than 3% to $232.7 million, falling well short of the nearly 4% growth that most of those following Compass had expected to see. Earnings plunged from year-ago levels because of one-time items, but even excluding their impact, adjusted net income fell 1% to $27 million, and that led to adjusted earnings of $0.80 per share, missing the consensus forecast by $0.03.
A closer look at Compass Minerals' numbers clearly showed the disparities between its major business segments. Salt-related revenue climbed 3%, as volumes of salt sold jumped 7% on an 11% rise in highway deicing product volumes. Average pricing for those deicing products fell 3% from year-ago levels, and the consumer and industrial component of the salt business suffered a 2% decline in volume sold. Yet lower fuel prices helped to bolster profits, and as a result, operating income for the segment jumped 22% on an adjusted basis.
Where Compass Minerals really saw conditions deteriorate was in its plant nutrition business. Sales volumes dropped 22%, and a small 2% rise in average sales prices was only enough to cushion the blow to dollar revenue slightly, as segment sales dropped 20% to $50.2 million. Compass Minerals noted that the pricing increases came from higher potash prices, which are consistent with what PotashCorp reported when it released its most recent results. However, higher production costs for Compass Minerals that came from the need to obtain additional sources of potassium led to a 37% drop in operating income for the segment.
CEO Fran Malecha celebrated Compass Minerals' ability to stay strong even under tough conditions. "Strong commercial performance in our salt business offset softness in our plant nutrition segment," Malecha said, "stemming from weakness in the broader agricultural market." Malecha also noted that the deicing bid season in North America set new volume records, pointing the way toward good future prospects as well.
What's next for Compass Minerals?
In Malecha's eyes, Compass Minerals should be able to sustain its positive momentum. "Our salt business is poised to continue improving its profitability through the end of the year and into 2016," the CEO argued, and "despite near-term challenges in plant nutrition demand, premium specialty fertilizers remain a very attractive segment of the agricultural market."
Compass Minerals offered investors more clarity on how it expects its full-year 2015 results to pan out, although the news was neutral. Compass tightened its previous earnings guidance by a dime per share on each end, now expecting final results to come in between $5.20 and $5.50 per share. For the fourth quarter, Compass believes that salt sales will come in between 4.2 million and 4.6 million tons, with selling prices in the $74 to $77 per ton range. Plant nutrition product volume should amount to 80,000 to 100,000 tons, with selling prices between $760 and $790 per ton.
Even though Compass Minerals didn't live up to all the expectations that investors had for it, the company still appears to be well-positioned to tackle the coming winter season. At this point on the calendar, Compass Minerals investors will generally have to wait and see whether the weather cooperates to produce greater demand for the company's deicing products. Until Mother Nature renders a verdict, Compass Minerals can only keep doing what it has to control costs and take advantage of the opportunities that have presented themselves.