Good day, and welcome to the Compass Minerals' Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Theresa Womble, Please go ahead..

Thank you, Alicia. Today, our CEO, Fran Malecha and our CFO, Matthew Foulston will be reviewing our second quarter results. Before I turn the call over to them, let me remind you that today's discussions 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, July 28, 2015, and involve risks and uncertainties that could cause the Company's actual results to differ materially. These differences could be caused by a number of factors, including those identified in the Compass Minerals' most recent Form 10-K and 10-Q.

The Company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release, which is available in the Investor Relations section of our Web site at compassminerals.com.

Now, I'll turn the call over to Fran..

Thank you, Theresa, and good morning to everyone on the call. Yesterday we released strong second quarter earnings including an earnings record by our Salt segment.

Matthew will walk you through the key quarterly details with you in a few minutes and I'll review some of the drivers that strengthened the quarter as well as discuss the ministry and market developments that will shape our results for the rest of the year.

Looking first at the Salt segment, pricing continued higher when compared to the prior year due to last year's 25% price increase for highway deicing salt in North America. Even though this is a light quarter for deicing, the tons of deicing salt we did sell had a meaningful impact on our average selling price.

In addition our consumer and industrial business delivered pricing improvements in most product categories. Of course, what is of interest to you at this time of year and what we are internally focused on is the current highway deicing bid season and our preparations to serve customers during the upcoming winter.

Our bid season results show that the normal to mild weather in a primary North American service area resulted in downward pressure on awarded bid prices. While we had some strength early in areas that broader the Eastern U.S. where winter was very strong, for the most part bid pricing has consolidated around a lower price point.

But that's only part of the story. Our bidding strategy focuses on optimizing profitability in order to deliver on our financial commitments. This requires a balance between price and volume.

This year we had an opportunity to increase our highway deicing commitment volumes because some of our competitors were shifting their supply to the east where winter was strong. In addition, we have incremental tons to serve more customers due to our strong operational performance.

So we pursued in one more business, we have increased our commitments for the upcoming winter by about 10% compared to last year. Also important is that the contracts we won, are in areas where we can earn better margins due to their proximity to our mines.

With this volume growth, in addition to lower salt cost expectations, which Matthew will discuss shortly, we expect our salt earnings to continue outpacing last year's results assuming average winter weather.

These are excellent developments for the company, we are very pleased with the bid season thus far despite the lower price result because we're positioned to take advantage of winter in areas that are most profitable to us. Now let's turn to Plant Nutrition, this business has performed as we expected for the second quarter.

We did sell fewer tons compared to a very strong result last year, which was primarily due to the strong U.S. dollar that is making the U.S. market more attractive to European imports. In addition, early wet weather in some of our eastern markets limited SOP sales there.

Even with more import availability our average selling price remained stable with our SOP only priced at 722 per ton, 14% above last year's price. Clearly the U.S. in an attractive market for SOP particularly with the current strength of the dollar.

That being said, Compass remains extremely well positioned in North America with the strong brand in the market, strong customer relationship and logistically advantage production in Utah adjacent to key markets. We're also approaching the fall season with the proactive distribution plan.

We are forward deploying products in our key markets to serve the fall season which is an element of our mission as a company delivering where and when it matters. You'll notice that our plant nutrition sales guidance for the second half for year is robust, that's based on our belief for the strengthened specialty potassium market in North America.

This a growing market supported by the recognized need for low chloride potassium in areas like California where more and more acres of row crops are being transitioned to permanent crop which demand SOPs. These growers are optimizing usage of acres to maximize our profitability. Further, the underlying domain for SOPs favored crops remained strong.

In conclusion I'm pleased with the strong second quarter results delivered by our employees. We've had excellent operational performance this quarter. The highway deicing business is set up for strong winter ahead. Our plant nutrition business is ready for the fall season.

Furthermore, we're executing on our strategies to optimize margin performance and grow profits, while continuing into invest for the future of both businesses and drive improve shareholder values. Now I'll turn the call to Matthew for a closer look at the financial results and our outlook for the rest of the year..

Thanks Fran, and good morning everyone. Let me start with a brief review of our consolidated results. Similar to the first quarter, adjusted EBITDA and EBITDA margin were up year-over-year 34% and 6 points respectively on broadly flat revenue. Strong performance in the salt business drove the year-over-year improvement, so let's start there.

If you are following with our presentation online, our salt results can be found on Slide 8. Salt segment operating earnings of 21.1 million were up over 200% from 2014 and set a second quarter record. We achieved this earnings growth through better pricing and improvement in salt costs.

Touching first on price, as Fran mentioned we continue to benefit this quarter from last season's 25% increase in highway deicing salt prices. In our consumer and industrial business there are some other factors at play.

You'll notice that our sales volumes in that business were down from last year, this is partly a result of exiting some low margin business and a decrease in sales the deicing repackages.

These items together put some downward pressure on our volumes but had a positive mix impact on our reported average selling price and cost per ton within the C&I business. Looking more closely we are able to increase prices modestly in almost every product category this year with overall C&I pricing up 4%.

Our per ton salt costs were also favorable to prior year. Underlying this was beneficial sales mix, lower depot and SG&A costs and higher production volumes at our mines. As Fran said, operationally it was a good quarter for our salt business.

These positive developments contributed to an 83% increase in EBITDA and a 12 percentage point increase in EBITDA margin year-over-year. Now turning to plant nutrient on Slide 9, revenue of 64.1 million was 3% lower than the year ago period, as improved average selling prices only partially offset at decline in sales volumes.

As Fran discussed our earnings were negatively impacted by the lower sales volumes as well as planned higher production costs of our SOP at Ogden. You'll recall that we have discussed over the last several quarters of the poor solar evaporation harvest in 2014, limited our supply of low cost home based feed stock.

As a result we're sourcing more KCL of the supplement out home based feed stock. We're pleased with the plant's performance this quarter as we were able to achieve better yields from that feed stock throughout the period, pushing our operating margin above guidance.

Season to date weather at our ponds Utah has generally been average and we're currently expecting the evaporation season to be average overall, which should bode well for lowering our costs significantly in 2016. We have added a new feature for the deck on Slide 10, where you can see how we stack up against our prior guidance.

We intend to continue this practice as part of our move toward increased transparency. On these keys segment metrics we met or exceeded our guidance, yet another indicator of our strong operational performance and overall results. On Slide 11 we outlined some of the key drivers of our outlook for the remainder of the year.

In salt we expect strong volumes driven by the increased highway deicing commitments we have won so far. Although our average price for awarded highway deicing contracts in North America is 6% lower than last year's results, I'd like to point out that this is still a net gain of 19% over the last two seasons.

Just as important as our price result for the bid season is the fact of a contracts we have won to date are logically situated within our served market to provide strong net packs to our mines. Further we expect to supply most of our contracts with our own production using less imported salt.

That’s why we expect further margin expansion in the second half of 2015. Salt segment earnings should also benefit from lower shipping and handling costs and improved SG&A expense.

The outlook in plant nutrition also is generally positive, we have excellent customer indications for full demand and we're working hard to forward deploy inventory in our key markets. Our production at Ogden is on plan and we're looking forward to the results of the solar evaporation season.

While the price of SOP in North America is moderating, this continues to be in an attractive price for us and SOP remains the preferred source of potassium for the crops we target. We expect that our production cost will remain elevated through the rest of the year for the reasons we've already discussed.

That combined with some potential downward price pressure in the second half is expected to result in our plant nutrition operating margin between 22% and 24%. Turning to the last slide, let me end with the brief summary; second quarter is concluding the record for the salt business.

We met or exceeded all elements of our segment guidance, both segments are continuing to perform well and we anticipate a strong second half. We remain focused on our capital investment plan and executing those projects on plan and on budget. Finally and most importantly we are reaffirming our full-year EPS guidance range of $5.10 to $5.60.

With that, I'll turn the call over to the operator, Alicia, for questions..

Thank you, sir. [Operator Instructions] We'll go first to Garrett Nelson from BB&T Capital Markets..

I wanted to enquire about the slight reduction in 2015 CapEx guidance. Does that represent the deferral of some spending maybe into 2016? Or perhaps the benefit of some cost savings on the plan spending; for example, maybe you've been able to procure some equipment at lower prices or something of that nature..

Hey, Garrett this is Matthew. I think as we have been talking about CapEx, we talked about two big years and given the lumpy nature of what we've procuring here, the timing could easily slip from one year to the other.

So nothing more than kind of putting a boundary around how big we think that's slipped from one year to the other could be -- it is differently a nice environment given what's going on in mining to be procuring some of this equipment and we're pleased with the results we're getting there as well..

Okay.

And your capital spending plan for 2016 and 2017, have those changed at all since last quarter?.

There is no material change in our outlook for the next two years on CapEx..

Okay. And then your effective tax rate was higher for the quarter. In the press release, you cited a change in Canadian tax law.

Could you elaborate on that? Was that sort of a one-time occurrence? And if not, could we possibly see a higher effective tax rate going forward?.

Yes there was a law change that was enacted in June, I think Canada, which eliminated our mining company benefit in Ontario. The tax rate for the quarter was about 6 points over what we've been forecasting, and a little over 4 points.

So that was related to this law change primarily the write-off of the deferred tax asset, when you think about going forward, we think this is two-tenth of a points or less ongoing effect..

We will go next to Chris Parkinson of Credit Suisse..

Perfect thank you, you posted the negative 6% for the deicing bid season this far. Can you just comment on some of the factors driving that number, including any market share gains, optimizing net backs? You mentioned third-party salt procurement versus just the general competitive landscape. Any general qualitative color would be helpful. Thank you..

Sure, this is Fran, Chris. I think if you look at the winter we had last year it was probably somewhat milder than average in the western side of our served area into extremely above average if you go into of Eastern part of the U.S.

which touches on the Eastern side of our served area, and that goes into markets that we tend to have a hard time reaching giving the placement of our mines.

I think as the bid season that went through the normal state by state process, we assess the market and our outlook on how others are going to approach the market and I think we saw obviously the tons shift to the east so our competitors were mindful of that and as we were.

And so we were able to gain share in our core area and I think as we've talked previously whether on previous calls or in our Investor Day, if you go back three-four years in time we had lost share in our core market and we had intentions to gain that back and we were talking about 4 percentage points of share.

So we look at this season coming off extremely high pricing last year and we knew that some of the late season high pricing wasn't going to last and imports had come into the market at higher cost of service, some of that high price business.

We knew that wasn't going to hold up across the board but we were able to gain share pick up on our commitments in an environment where margin are strong and so I think excellent management by our team to do that, we aren’t going to have the level of imports we had last year, so not only we're picking up more tons at nice margins but will have lower cost to serve that business in the winter ahead.

And now we'll just have to wait and see how the winter comes at us, because we are positioning those tons in the market closer to our mines and looking forward to hopefully good winter for Compass..

Perfect. Thank you. Just a quick follow-up. You also mentioned that you saw some increasing competition to SOP markets.

Can you just comment on if that's specifically pertinent to any specific regions that's affecting you? And then also, do you anticipate the trends to remain stable or accelerate into the back half of the year?.

I think if you look at imports over the past five or six years or so, they've been growing with the growth in the market and every years is a little bit different but this year is somewhat of that, we're more imports and they're spikey in certain months depending when shipments come in and I think in recent months for the tail end of the spring season here we saw maybe a slight up-ticking in the monthly imports and as we look to the back end of the year we expect it to be pretty normal.

I think we'll see imports continue to come in of the South-East of the U.S. like they normally do. Occasionally we see imports that do come in the west coast and we would expect some of that to continue as well. Obviously if you look at the pricing relationship between MOP and SOP, we've widen that spread in the U.S. and the U.S.

is a bit of island of pricing around the world, combined that with currency. I think all those factors are probably playing at few more tons coming in but also a market that’s growing and we talked about some those crop shifts in California and especially that are driving increase demand. And we're well positioned to meet that demand.

So I think it's going to be competitive and we are well positioned to compete with our -- not only our location but we are the consistent supplier in the market we are the only producer in North America with the quality of our product and the consistency of our product, and as we continue to build on reliability with the investments that we made in our production facilities, we think that we are positioned to compete in this environment..

Perfect. Thank you..

Thank you..

We will go next to Joel Jackson of BMO Capital Markets..

Hi, good morning. Just sort of the first you guys have really done guidance. You reiterate your guidance ranges from 510 to 560 for EPS this year and 12 million or 13 million tons of sulfur this year.

Just so we understand, are you guiding towards the middle of this range? Would it be fair to say since the last quarter, maybe you are updating to the lower end of these ranges? Maybe you could just give some more color around that, please..

I am not sure about the lower end of the range. I think this -- we left the range unchanged and this is a small quarter for us even though it was a strong quarter. And so I think we feel good about the range that we are in.

There's some dynamics in the back half, mainly whether that can influence our results but I think we certainly aren't implying here that were looking at a result that would be at the low end of the range. Matthew, may have other thought there..

No, I don't feel any better or worse about the guidance range now than I did when we put out there at start of year. We're executing the plan we're on track and we think we got that range where it needs to be for the full year..

Okay that’s helpful, thank you. So my second question would be, you're talking about finding the right balance of price versus volume in the bid season, and going for more volume this year. So kind of a two-part question, which is that can you talk about -- you said your commitments were up 10%.

Can you talk about -- it seems like when I look at the tenders, maybe some of the volumes in your areas are down 10% to 25%. So maybe you can just talk about what overall word of volumes are down in your area.

And the second part of the question would be as the Goderich shaft realigning, expansion, all that is done over the next couple of years, would it -- is it reasonable to assume that you would try to maximize volumes out of Goderich to maximize volumes as opposed to maybe strike a balance? Thanks.

If you look at the tender size, this is on municipal -- the state in prevention bids. Then it'll probably be consistent throughout all the commercial business that we do as well. We would see the change being down year-over-year about 9%.

It's actually probably a bit higher on the state bids and less of a downtick on some of the other, so maybe some of the more public bids that you've seen are carrying a higher percentage than what we are seeing on average. And I think we're seeing the bids kind of more at the longer term average for our serve market.

And in that serve market we have been able to achieve higher level of commitments which tells us that we are able to gain share in an environment that's healthy to do that.

As we look forward with the investments that were making in Goderich, really the shaft realigning is at once in a 50 years type of investment that we're making so the assets should be able to perform well into the future and as we realign those shafts it will allow us to access additional hoisting capacity that we don't have today, because one of those shafts is a production hoist.

It's not that primary hoist, we are producing at kind of our capacity as we see it today which is in that 7.5 million to 8 million tons per year.

Once we complete the realigning of that other production shaft which would happen sometime in 2017, it'll give us access to additional million tons or so of capacity, so as the market continues to grow at the rate it's been growing, we should be able to pick up certainly our share of that.

If not, hopefully more than our share of that, and then in big winters also be able to size up our production to meet demand..

We will go next to Ben Richardson from JPMorgan..

Good morning..

Good morning..

This is Ben Richardson speaking for Jeff.

Just had some questions about the C&I pricing dynamic into the back half, if you had any commentary on that?.

Yes, this is Matthew. I don't think we see anything particularly different in the back half on the C&I side. We had a pretty good year last year in terms of pricing opportunities as I mentioned across most of the segments within that and we are up 4% overall.

Volumes had been little bit low in second quarter as we got out of some less attractive business, but by the same token we have been filling in with new business in the back half and feel pretty good about delivering on the second half in C&I..

Okay and just on the margin guidance for the back half in the plant nutrition segment, just year-over-year, it looks like there's some compression there and wondered other than price, are there other factors in that margin compression?.

Yes the last couple of calls we have talk about the poor solar harvest that we had at the tail end of last year. And the cost pressure that was putting on our business as we go through 2015.

We previously estimated that in the $90 to $100 a ton range and as I mentioned in Q2 we were somewhat better than that and are cautiously optimistic going through the balance of the year that the penalty is not as high but we will be carrying a pretty significant penalty through the balance of the year that we didn't have last year.

And if we have a normal solar harvest, which we are about halfway through now, a lot of that cost will fall straight out as we go into next year..

Okay, outstanding. Thank you very much..

Thank you..

We'll go next to Ivan Marcuse from KeyBanc Capital Market..

The first one is on the plant nutrition business. If you look at your projects, you mentioned that compaction is up and going, and then your evaporation season is going smoother this year.

So outside of it, would you think that you could see a greater fall than the $90 a ton? Or how much higher is today going into next year? How do you think about unit operating costs for the plant business going to 2016? And then as these projects get up and going into 2017, sort of the trajectory?.

Yes, I think take the first piece obviously first, we're hoping if we get a normal solar evaporation season, that cost penalty we're bearing drops out.

We had originally thought that to be in the $90 to $100 range, I think our view now is it's 20 to 30 below that as we've been seeing these good margins come through in Q2, so I would expect with the normal harvest that we will be out of that penalty in 2016. And obviously when we're on the Q3 call, we will update you.

We've also been running extremely well after our slow stop on the compaction side and been catching up on that progress. So, it's been a pretty good year-to-date so far, slow start, much better later..

Just one thing to talk about the future there, as we finish the plant expansion and additional compaction that we're just getting started on there that will be over the next two years and be available beyond '17. Actually we'd expect those cash cost because we're not only going to be producing more tons and get some benefit there and the fixed cost.

But we should see yield increase as well off of our ton-based production that will help our cost slightly.

So I'd expect those cash costs on ton-based production to be in the low 200s which should set us up well to complete against anybody in the world quite frankly on SOP, the balance of the production will be using our excess sulphur from the harvest over KCL.

That will be determined more by the pricing of KCL for time, but if you look at how we've been able to separate that pricing in the market and achieved good margins with SOP, I think we're going to be extremely well positioned for the future as we bring that capacity on line..

Thanks you for that detail.

And then moving over to salt, how big of a tailwind you mentioned transportation costs coming down is sort of your current expectations in the back half?.

We think it's about $1 a ton improvement in the back half..

On a year-over-year basis?.

Yes..

And then just a quick follow-up on your C&I outlook, if I understood correctly, you've gained some business, so you shouldn't see that year-over-year -- I guess in the first half of the year, you have been in the high teens in terms of volume being down.

Would you expect that same sort of trend on a year-over-year basis in terms of volume with pricing moving up, or do you think that -- we start laughing -- you gain the business that you have, so we should be more net flat? Just trying to get an idea of how you're looking at year-over-year volumes in the C&I business..

Yes I think of C&I as a percentage of total salt business and in the second half you're going to see that ratio be very, very similar to how it was last year. So, effectively a recovery of that volume to its normal proportion of our total business..

Great.

So in theory, since its better business, would you expect that pricing to be flat, or do you see the move up as a function of mix?.

There is always an impact of C&I mix on our average selling price, as you know it's much higher price. So I think Q3 and Q4 versus Q2 there will be little impact there..

[Operator instruction] We'll go next to Chris Shaw from Monness Crespi..

Good morning everyone. I just want to look into the -- about the terminology on the -- where you're talking about the committed volumes that are up 10%.

Is that -- and if you are -- is the overall sort of their customer volumes -- what they are asking for down 9% -- I remember last year you had to bring in the imported volumes to satisfy all your customers.

So if you're actually increasing your committed volumes for next year, why wouldn't you need the imported product again? Maybe I'm misunderstanding what the committed means?.

This is Fran. I think the difference there is with the production from our mines we're running at capacity expect to do that, throughout the balance of season and probably a little bit better inventory position as a service on that demand that we're committing to. That’s why we see less imports to serve our customers in the year ahead..

So the committed volumes doesn't mean you've contracted for volumes that are so far up 10% versus last year.

I'm not misreading that?.

That’s right..

Okay. Thank you. And then on the pricing front, 6% as we are down -- as we are about 80% through the bid season. I remember last bid season, the last part of it -- when you reported 2Q, I think you were 75% complete. And between the last 25%, it actually drove your overall average price up another 5%.

I remember a lot of the late-season deals were -- I'm sure there were some contracts, I remember, I think were maybe -- not necessarily for you guys specifically, but I remember the industry were up over 100% year-over-year.

So is that 6% -- do you think that's going to be for the full 100% of your season, or do you think there's a little -- could be a little pressure on this last 20% that comes in?.

That’s our view on what the full season will be as well so, I don't see that dynamic that you mentioned last year happening again this year..

Great. Then just one sort of random question at the end.

Do you have any idea how of the SOP market that you serve your customers -- how much of that is almonds? Is that a big, big piece, or is it just something that's been growing?.

It’s a core crop, but I won't be able to tell you at top of my head what percentage that is. But it's one of -- it's a myriad of crops that SOP impacts. So, it’s an important crop to us, it is growing but it's not overly significant in terms to total..

Great. Thanks so much..

Thank you..

[Operator Instruction] We'll go next to Bob Koort of Goldman Sachs..

Good morning. This is Ryan Berney on for Bob. Thanks for taking the question. First, wanted to dig a little bit into the comment you made in the slides about the capacity. You guys said you were running at capacity after a little bit of a slow start from the beginning of the year.

I'm kind of wondering from an operating or an effective operating perspective, does that mean a 95% operating rate? And I'm really trying to get down to what you view as running at full capacity to kind of back into your total capacity.

And then also if you can provide maybe a bridge from where it was in the first quarter to the second?.

I would suggest on the operating level we were probably and certainly as we probably were down Cote Blanche earlier in the year. Since then we probably have been running actually slightly above our nameplate capacity slightly, so we should be in that 95% to 100% of capacity range as we look at the performance in second quarter through the full year..

Okay, great. That's helpful.

And then one follow-up on the plant nutrition side is have you had competitive imports, I presume, from Europe before? Or is this a relatively recent phenomenon?.

I think as I mentioned earlier if you go back and look at the last five or six years we've had -- certainly there's been imports into the market, we're the only producer in North America., so there have been imports on to both coasts east and west, either out of Europe or South America primarily.

So this is not a new phenomenon and the imports are chunky. They depending on shipment sizes and what not they can be chunky and we saw some of that what I'll call chunkiness in April and May. But historically imports have been around 25% of the total demand and that demand is growing.

So I think that the currency certainly helps people who're looking at this market and the lower price of KCL helps if they are using a process that -- like the Mannheim process that uses KCL as an example. So that does increase the attractiveness of this market, but as I mentioned the imports have been in that 25% range historically..

And the thought being that maybe a cheaper currency rate elsewhere lowered their production cost, so they were starting to price competitively.

Is that an accurate view? And then maybe in addition to that, is there a reason why this quarter we started to see the price crack, if that's kind of a normal import thing over the last couple of quarters? You guys have been pretty successful raising SOP-only price?.

Yes, I think one of the primary producer is in Europe and so if you look at the year relative to the dollar versus a year, certainly two years ago, it's helping them out.

And that’s just what it is, but I think on the pricing to our customers we recall that there is crops that were supplying SOP to that are chloride sensitive and they are going to need SOP.

Those crops are improving the nut crops are example of that are increasing in acreage and other acres are going out of production in California, but as the pricing relationship to MOP continues to widen and if crops can substitutes some of that, I mean that’s going to be pressure on demand so there is an impact there, probably tells me that we have done a nice job of increasing this pricing and given today's environment I think we're going to be in this range for the time being..

Great, thank you very much..

Thank you..

And at this time, I would like to turn the call back over to Theresa Womble for any additional or closing comments..

Thank you, Alicia and thank you all for joining our call today. We appreciate you interest in Compass Minerals. Feel free to contact the Investor Relations department with any follow-up questions you may have. Have a great day..

That does conclude our conference for today. We thank you for your participation..