For Compass Minerals, a Chilly Start to 2015 Wasn't Enough

Image: Compass Minerals.

Given how cold it was in many parts of the Northeast during the winter months, many would think that road-salt maker Compass Minerals International would have cashed in on demand for its products. Yet in terms of raw winter impact, 2014's quarter was a tough act for Compass to follow, and the company had to make do with trying to squeeze more profit from lower sales. In Compass Minerals' first-quarter financial report Monday afternoon, the company did exactly that, but even earnings growth in excess of 20% wasn't enough to satisfy the ambitious expectations shareholders had for the quarter. Let's look more closely at Compass Minerals and how its high season went last quarter.

Cold as ice means bigger marginsCompass Minerals' primary financial results were mixed. Investors had already expected a decline in revenue compared to the extremely harsh winter season last year, but sales of $393 million were down almost 7% from year-ago figures. Profits moved in the right direction, but adjusted earnings of $1.79 per share fell $0.08 short of expectations despite rising 21% from 2014's winter months.

Image: Compass Minerals.

Looking at Compass Minerals' main segment, the company's salt business was the primary culprit for the downward pressure on sales. Revenue fell 10%, as the company cited reduced demand for its winter-weather deicing products compared to 2014. Yet even though sales volumes dropped almost 20%, Compass Minerals was able to support its dollar-value revenue figures because of a 17% rise in average sales prices for its highway deicing products. In particular, Compass Minerals enjoyed a 25% jump in bid-season pricing in North America, and that helped to lift operating earnings for the segment by about a sixth. Characterizing this year's winter season as average, though, Compass Minerals believes that the impact of winter weather took away $33 million to $37 million in sales and $14 million to $18 million in operating earnings during the first quarter.

Compass Minerals' plant nutrition business also fared well, with sales up 11%. Again, strong pricing offset reduced volumes of product sales, and that helped push the company's operating earnings up by about a quarter compared to last year's results. Some issues surrounding availability held back the segment's results, which would have been even stronger without the difficulty in obtaining products like potassium and sulfate of potash.

CEO Fran Malecha took the results in stride. Malecha praised the company's employees, arguing that their "continued execution of our margin maximization plan while battling inconsistent winter weather" was an essential element in the company's overall growth.

What's next for Compass Minerals?Despite falling slightly short of what investors had hoped to see, Compass Minerals still believes that 2015 will be a solid year for the company. The mineral producer kept its guidance of $5.10 to $5.60 per share in earnings unchanged, and it still expects sales of 12 million to 13 million tons of salt. Compass Minerals even boosted its estimated average selling price, lifting it by $2 to $76 to $80 per ton. Yet a slight drop in fertilizer volume by 10,000 tons to a range between 380,000 and 410,000 tons reflects some of the supply constraints the company is facing.

With winter over, attention will turn to the coming bid season for next year. Compass Minerals believes that the average winter conditions it faced during the quarter will lead to "a typical bid season" for salt for the 2015-16 season. It also expects potash sulfate demand to remain strong and for prices for micronutrients to climb along with rising levels of farming activity.

Compass Minerals might not have met some investors' expectations, but the company has put another solid year in the books. Given the uncertainties of winter conditions, Compass Minerals' ability to weather cyclical ups and downs should give long-term shareholders greater confidence in the company and its stock throughout the remainder of 2015.

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