Compass Minerals Posts a Double Win

By Dan Caplinger Markets Fool.com

Compass Minerals International (NYSE: CMP) has two very different business segments, one of which focuses on road salt for highway use and the other of which offers nutritional products for plants. Diversification can help companies like Compass weather tough conditions in one market, but every once in a while, good conditions in both markets can bring a nice positive surprise.

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Coming into Wednesday's fourth-quarter financial report, Compass investors expected to see a big boost in revenue but a drop in net income. Compass' results bore those expectations out, but the company did better than some were looking to see, and its future looks brighter going into 2017.

Let's look more closely at Compass Minerals to see how it did and what's ahead for the company.

Image source: Compass Minerals.

Compass moves forward

Compass Minerals' fourth-quarter results were mixed. Revenue jumped by more than half to $443.2 million, topping the consensus forecast among those following the stock by nearly $30 million. GAAP earnings also jumped, but after taking out some favorable extraordinary items, adjusted net income dropped by more than a fifth to $46.1 million. That produced adjusted earnings of $1.35 per share, which was $0.24 higher than investors had expected but still down sharply from year-ago levels.

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Taking a closer look at the numbers, Compass Minerals saw relative strength in both of its markets on the revenue side, but profits moved in opposite directions. The road-salt business saw a 12% jump in segment revenue, riding a substantial increase in sales volumes for highway deicing and consumer and industrial salt products. Increased snow activity pushed deicing product volumes up 27%. However, lower contracted pricing for highway deicing products contributed to an 8% drop in the average selling price for those products. That led to a 10% drop in segment operating earnings, caused in part from higher costs due to unplanned downtime at one production facility and lower operating rates at its salt mines overall.

The plant nutrition segment benefited greatly from the purchase of Brazil's Produquimica. Segment revenue rose 250% to $176.1 million, rising not just on acquisitions but also on success in the North American market as well. Adjusted operating earnings more than doubled from the year-ago quarter, although operating earnings from North America were down due to lower average selling prices and higher shipping and handling costs.

CEO Fran Malecha was happy with Compass' results. "Each of our key businesses ended the year with positive momentum based on improving market conditions," Malecha said. "We've experienced more typical winter weather, which is driving salt sales volumes above prior year, and demand for our portfolio of specialty plant nutrients was robust in South America and improved in North America."

What's ahead for Compass Minerals?

Compass Minerals sees even better times ahead. In the words of Malecha, "As we enter 2017, we expect to build on this momentum, capitalize on improving underlying market fundamentals and continue executing on our strategy to diversify and strengthen our company."

More specifically, better market conditions in the deicing market should boost salt sales in 2017, although lower prices and higher production costs could put further pressure on operating margins during the first half of the year. In specialty nutrients, the North American market seems to be stabilizing, and strength in the Brazilian market could drive further success. However, the seasonality of the Brazilian business will make it tough for the segment to generate operating earnings during the first half of the year. For 2017 on the whole, Compass expects earnings of $3.20 to $3.70 per share.

Compass Minerals shareholders were happy about the report, sending the stock up almost 3% in after-hours trading following the announcement. If conditions keep improving in both of its key markets, then Compass' fundamentals could look even more attractive in the coming year and beyond.

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