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Compass Minerals International Inc. Message Board

  • dtmccune3 dtmccune3 Jan 26, 2006 12:25 PM Flag

    ibleed4war & second_law....

    You guys seem to know a lot about this biz and about CMP.

    I am currently looking at this company as a short trade based on many of the factors mentioned on this board:

    1) Mild winter throughout the midwest and northeast...

    2) CMP is highly levered

    3) Commodity prices...nat gas and transportation related such as gasoline

    4) Strong competition

    5) Difficult comparisons to last year's results...especially since last winter had more snow etc...


    I have a few questions:

    Do you agree with my trade idea?

    What are the ordering schedules? Meaning when do cities/states order and take delivery of the salt?

    I wasn't sure if it was a monthly thing...a quarterly thing or what...I was thinking there could be a lag in the mild winter showing up in CMP's results...which would hurt them more next quarter rather than this one...but I figured that would hurt their guidance so either way they should be hit for the short term at least.

    Thanks for your help...if you guys want some help with something or some picks let me know...I have a few depending on what you are looking for...

    later

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    • thanks for the info...CMP wish they had done that this winter...i'm sure.

    • thanks for the info...CMP wish they had done that this winter...i'm sure.

    • >What kind of weather derivatives? What do you bet on the number of snow days or something? Is this market big enough for large companies to actually hedge?

      Yes, you can absolutely hedge against the number of snow days. Is the market big enough? Temperature contracts are traded on the Chicago Merc, and there are several companies that will offer custom designed hedges against just about any kind of weather. It's a multi-billion dollar market.

    • Thanks for the PROG tip...haven't had time to look into it, but on the surface it sounds like TRFX (small, high yield, tech, cash on the books, etc.)

    • I hear that...

      Still not sure if I believe in the whole global warming thing...or if it is possibly just a cyclical thing...and we just happen to be going through the warmer cycle.

      For whatever reason the weather is getting warmer lately...and you are right no one has control of that.

      What kind of weather derivatives? What do you bet on the number of snow days or something? Is this market big enough for large companies to actually hedge?

      interesting...

    • >Now if the next 3 winters are like the one we have had so far this year...then CMP might be in a little troouble, but that is unlikely to happen.

      I would feel much better about CMP if they hedged against a lack of snowfall with a weather derivative. They hedge their nat gas exposure, but as we will most likely see in the quarterly results, the weather is another major risk to improved earnings. I really don't want to own a stock in a company whose earnings may ebb and flow as Mother Nature sees fit.

    • no problem...the other guys on this board are much more knowledgeble on CMP than I am however...and fair disclosure wise...I am short CMP (only for a trade on this quarter b/c of the weather)...so I obviously have a negative bias at this point in time.

      If you are looking for another good stock for the long term that pays a good dividend...and also has some major growth prospects...you should check out (PROG)...

      I tried sending some info on this company to Second_law_guy...and Iblled4ward, but for some reason it didn't go through...sorry guys.

      Anyway, if you are interested here is some info on PROG: (It is a much smaller company, but I think it fits the same profile as CMP)

      They have a 4.5% yield...

      They have about $4/share in cash...

      They are growing nicely...last Q's revenue growth rate was over 30%.

      They are profitable...and they should be able to run-rate last quarter's numbers b/c they have made most of the investments they are going to make. They just opened an office out on long island which cost them a lot last year...they said on their last conf. call that their head count for their sales team would remain fixed...and that they would be faster to get rid of underperforming sales people.

      Also, the products the company has been selling are on fire...their main product is SAP's VMware...just look at how SAP has been doing lately...they also have some other software products coming out that should drive growth including MSFT's new software (longhorn...or Vista...or whatever they are calling it these days) should be out in the 2nd half of the year.


      Anyway, I think that even though it is a small cap company which inherently has more risk than larger cap stocks...it is a pretty safe play when you look at the yield, the cash position, and the overall growth...

      so it should give you some cash flow...as well as greater upside...although they will probably get bought out well before your child goes to college...so you might have to keep an eye on it a little more than say a CMP.

      gl

    • Thanks...I am looking long (12 years until child #1 enters college Lord willing). Just wanting to diversify college monies with solid companies paying a solid dividend or with lots of cash on hand. So CMP is on my radar screen (along with some very cheap-looking large caps) when and if the price gets right. The tough part is trying to figure out which targets are in fact the best buy. If CMP dipped below $20 with no real significant matters developing other than those attributable to weather it will definately be one to load up on.

    • I think you will be able to get it lower...I think the low $20's is very likely due to the weather this winter...Q4 and Q1 are by far their biggest quarters...so this lack of snow has got to be killing them...and as i said before they will have difficult comparisons to last year when the winter storms were pretty bad.

      I think we could even see the high teens...if the winter does not get any better for them...

      But with that said...this is a very solid company for the long term...the dividend is good...and they have good cash flows (possibly with the exception of this year) so the debt is not a problem.

      Now if the next 3 winters are like the one we have had so far this year...then CMP might be in a little troouble, but that is unlikely to happen.

      If I was going to go long I would wait until after the Q1 report...if I am right the worst should be priced in at that point.

    • RESPONSE IN ALL CAPS

      I am currently looking at this company as a short trade based on many of the factors mentioned on this board:

      1) Mild winter throughout the midwest and northeast...

      NOTHEAST IS MEANINGLESS FOR CMP. MIDWEST SNOWFALL WAS WELL ABOVE-AVERAGE THROUGH DEC, SO CMP SHOULD HAVE GOT OFF TO STRONG START. JAN SO FAR HAS BEEN WELL BELOW AVERAGE, SO NOT CLEAR AT THIS POINT HOW OVERALL WINTER WILL SHAKE OUT.

      2) CMP is highly levered

      COMPASS IS ONLY 3.4X DEBT/LTM EBITDA AT 30 SEPTEMBER. THAT IS A REASONABLE LEVEL OF DEBT FOR SUCH A STEADY CASH FLOW BUSINESS.

      3) Commodity prices...nat gas and transportation related such as gasoline

      COMPASS HEDGED NAT GAS AND GOT PRICE INCREASES FOR THIS WINTER TO FULLY COVER HIGHER ENERGY AND FREIGHT COSTS.

      4) Strong competition

      COMPETITION IS EXTREMELY DISCIPLINED. THE BID PROCESS IS VERY SUPPORTIVE OF PUSHING PRICES HIGHER (BIDS ARE PUBLIC INFO, SO ALL COMPETITORS CAN SEE WHO BID WHAT - GOOGLE "SALT" AND "MORTON" AND YOU WILL SEE BID TABS FROM CITY COUNCIL MEETINGS YOUSELF)

      5) Difficult comparisons to last year's results...especially since last winter had more snow etc...


      I have a few questions:

      Do you agree with my trade idea?

      NO. CMP IS GOING TO ANNOUNCE DIVIDEND INCREASES BASED ON INTEREST SAVINGS FROM RECENT REFINANCING THAT WILL PUSH STOCK HIGHER.

      What are the ordering schedules? Meaning when do cities/states order and take delivery of the salt?

      CMP HAS DEPOTS THEY STOCK AHEAD OF WINTER. USERS HAVE SMALL STOCKS AND ORDER AS THE USE.

      I wasn't sure if it was a monthly thing...a quarterly thing or what...I was thinking there could be a lag in the mild winter showing up in CMP's results...which would hurt them more next quarter rather than this one...but I figured that would hurt their guidance so either way they should be hit for the short term at least.

      ABOVE-AVERAGE SNWO THROUGH DEC SHOULD HAVE THEM REPORTING STRONG 4Q RESULTS ON FEB 14TH. THEIR FORWARD OUTLOOK MAY BE CAUTIOS, HOWEVER.

      • 1 Reply to second_law_guy
      • I would only add that the early winter snowfall, while good news, may not have been enough to give CMP a good season. They announced in the late fall that they had held back a bit on pre-season sales in hopes of garnishing more intraseason orders, as these have a higher margin. I don't know how many of these orders they are receiving, if any.

        Also, incredibly warm winter temps reduce the volume of salt needed, as the roads tend to be warmer when snow falls as well as melt accumulated snow faster.


        I agree with a short position at this point in time.

 
CMP
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