Compass Minerals Reports Second-Quarter 2020 Results

OVERLAND PARK, Kan.--(BUSINESS WIRE) - Compass Minerals (NYSE: CMP), a leading global provider of essential minerals, reported significant year-over-year increases in second-quarter 2020 operating earnings and adjusted EBITDA* driven by strong growth in our Salt and Plant Nutrition South America segments as well as improved execution across the company.

 

Net earnings for the second quarter of 2020 were $1.7 million, or $0.04 per diluted share, compared to a net loss of $11.8 million, or $0.36 per diluted share, in the prior-year second quarter. This improvement was driven by a year-over-year improvement in operating earnings of $20.4 million partially offset by increases in interest and foreign exchange losses.

 

“Our strong results this quarter, achieved while facing the challenges of the COVID-19 pandemic, demonstrate the essential nature of our products, the resiliency of the core markets we serve and the deep commitment of our employees to safely serve our customers' needs and execute on our strategic initiatives,” said Kevin S. Crutchfield, Compass Minerals president and CEO. “While we acknowledge the uncertainties that lie ahead given the ongoing pandemic, we are maintaining a sharp focus on those things we can control - operating safely and efficiently and executing on our enterprise-wide optimization efforts - in order to deliver value for our shareholders, customers and communities.”

 

*EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted EBITDA and adjusted net earnings are non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in tables at the end of this press release.

 

SALT BUSINESS SUMMARY

 

Second-quarter 2020 Salt segment revenue totaled $121.8 million, an 8% increase from prior-year results, as sales volumes increased 9% from prior-year results while average selling prices declined 1%. Highway deicing sales volumes increased 18% from second-quarter 2019 results primarily due to customer purchasing of minimum highway deicing contract obligations following the mild winter. Consumer and industrial sales volumes declined 9% year-over-year primarily due to COVID-19 related impacts on non-deicing salt products demand. Highway deicing average sales price increased 11% due to improved North America highway deicing contract pricing and consumer and industrial pricing remained relatively flat with the prior-year period.

 

Salt segment operating earnings increased 103% to $29.7 million from second-quarter 2019 results of $14.6 million, while EBITDA grew 60% to $46.9 million. The prior-year results included $2.8 million of unusually high logistics costs due to Mississippi river flooding. Excluding these costs, second-quarter 2020 operating earnings and EBITDA increased 71% and 46% respectively year-over-year. Salt segment operating margin expanded to 24.4% from 13.0% in the prior year and adjusted EBITDA margin improved to 38.5% from 28.6%. These results were driven by continued improvement in Goderich production rates as well as lower per-unit logistics costs, increased highway deicing pricing and a favorable sales mix compared to second-quarter 2019 results.

 

Bid Season Update

 

Approximately 75% of our North American highway deicing bidding process for the 2020-2021 winter season has been completed. Reduced bid volumes following the mild 2019-2020 winter and elevated producer inventory levels have created a competitive pricing environment. Given bid results awarded to date, the company expects its average contract price for the upcoming winter season will decline approximately 11% from prior-season’s results. This follows two consecutive seasons of bid price increases of 8% and 18%. The company also expects that its total committed bid volumes will increase by approximately 8% compared to prior-year results reflecting its improved supply position due to better production rates at the Goderich mine.

 

PLANT NUTRITION BUSINESS SUMMARY

 

Improved crop conditions in North America and the continued strength of crop economics in Brazil produced robust demand for the company's specialty plant nutrition products in North and South America during the second quarter of 2020. As a result, second-quarter 2020 sales volumes significantly increased from prior-year levels.

 

Plant Nutrition North America segment revenue in the second quarter of 2020 totaled $55.1 million, up 15% from prior-year results which were negatively impacted by wet weather in key North American markets. Sales volumes increased 20% while average selling prices declined approximately 5% compared to 2019 second-quarter results. Operating earnings increased 11% to $5.1 million from $4.6 million in the second quarter of 2019, while EBITDA totaled $15.3 million compared to $15.5 million in prior-year period. Operating earnings benefited from increased sales volumes and lower depreciation expense, partially offset by lower average selling prices.

 

Plant Nutrition South America segment second-quarter 2020 revenue totaled $76.9 million, a 6% decrease from 2019 results as a 12% increase in sales volumes was more than offset by a 16% decline in average selling prices, which was due to the weakening of the Brazilian Real. In local currency, revenue grew 28% and average selling prices increased 15% from second-quarter 2019 results. Both agriculture and chemical solutions sales volumes increased compared to the second quarter of 2019. Operating earnings improved to $8.9 million compared to $1.7 million in the second quarter of 2019, while EBITDA of $13.5 million increased $6.3 million from prior year results. Similar to the first quarter, these results were primarily driven by increased agriculture product sales, which have benefited from improved farmer economics and fertilizer affordability compared to prior year. In addition, increased demand for sanitation products in light of COVID-19 as well as an improved product sales mix compared to the 2019 second quarter drove improved profitability for the chemical solutions business.

 

OTHER FINANCIAL HIGHLIGHTS

 

The company reported a second-quarter 2020 loss on foreign exchange of $5.0 million compared to a loss of $4.1 million in the prior-year quarter.

 

Interest expense increased $0.4 million from second-quarter 2019 levels to $17.2 million as a result of a higher blended interest rate, partially offset by lower total borrowings.

 

Cash flow from operations for the first six months of 2020 totaled $233.9 million, more than double the prior-year results. In addition to increased net income, continued working capital improvements contributed to our results.

 

The company ended the quarter with about $67 million in cash and approximately $59 million drawn on its $300 million revolving credit facility. The company's leverage ratio (net debt-to-EBITDA) as calculated under its credit agreement was 3.5x at the end of the 2020 second quarter.

 

During the second quarter of 2020, the company further enhanced its liquidity position by entering into a revolving U.S. accounts receivable financing facility of up to $100 million with a maturity date of June 2023. The facility provides increased, low-cost borrowing capacity and enhanced flexibility to our balance sheet.

 

COVID-19 IMPACT AND OUTLOOK

 

In light of continued concern over the spread of COVID-19, the company has maintained multiple precautions and safety measures to ensure the well-being of its employees, its customers and all communities. To date, we have not experienced material production disruptions directly related to COVID-19 at any of our sites across our global operations, although our U.K. mine was idled for 7 weeks due to mild winter weather and U.K. government guidance on COVID-19 preventive measures. In addition to incremental costs associated with our operational precautions to meet COVID-19 challenges, we experienced lost sales in the second quarter of 2020 due to manufacturing outages and retail disruptions primarily for non-deicing salt products. In total, we estimate that these impacts totaled approximately $3 million in the second quarter of 2020.

 

We expect second-half 2020 Salt segment revenue and EBITDA to be similar to second-half 2019 results as an increase in expected sales volumes and lower production costs are projected to offset a year-over-year decline in highway deicing prices.

 

In the Plant Nutrition North America segment, we expect second-half 2020 revenue and EBITDA to be similar to second-half 2019 results. We currently expect a modest year-over-year decline in second-half 2020 sales volumes, although an increase in micronutrient demand compared to the second half of 2019 is expected to drive an improvement in average selling prices during this period.

 

Our Plant Nutrition South America segment is expected to continue generating year-over-year growth in local currency in both revenue and EBITDA during the second half of 2020. Our reported results, however, are expected to be lower compared to second-half 2019 results due to a weaker Brazilian Real compared to prior year.

 

Given our segment outlooks for the rest of the year, we are maintaining our full-year adjusted EBITDA guidance of $330 million to $370 million.