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Compass Minerals International Inc. Message Board

  • second_law_guy second_law_guy Apr 24, 2006 9:04 AM Flag

    ROH results vs. CMP 1Q estimate

    ROH 1Q06 salt segment sales were $263 million (-17% vs. PY and -10% vs. PQ). Salt EBITDA was $47 MM (-24% vs. PY and -22% vs. PQ).

    CMP 1Q consensus estimate is $0.75/share, which is 29% below very strong 4Q05 of $1.05/share. Based on the sequential change in ROH's results, it looks to me like CMP should be able to hit 75 cents for the quarter.

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    • The debt I referenced in my prior post was all Long Term debt, not revolver debt. To pay off or "call" long term debt prior to its maturity requires paying a call premium. CMP did not pre-pay any of its long term debt in the first quarter. It will still be roughly $612 MM when CMP releases its balance sheet next week. The $47 MM in cash that CMP had on its balance sheet from the refinancing/ UK evap salt sale has probably been reduced down to $42 MM or so, due to payment of the higher dividend. They will earn some interest on that $40 MM in cash, but probably at god awful money market 4% rates, so you might get a benefit of $500,000 or so. Inconsequential in the big pitcture of things.

      Yes, the first quarter of the year is highly cash flow positive for CMP. You win a gold star for having read the 10-K, but that's only logical, 65% of the Company's profitability comes from deicing salt, of course they are going to generate cash when government pay their bills. What matters is relative performance and this year's light winter is going to make the year over year comparison highly unfavorable for CMP.

      To generalize the sales process, deicing salt is sold to government bodies through bidding contracts. These bids usually specify a price per ton for the salt plus minimum and maximum tonnage amounts. Since government entitities have limited storage amounts, they will only order a small amount of salt at a time. As their salt supplies are depleted during the winter, they will reorder. Generally speaking, most government entities will reach their contractural mimimum amounts sometime in late January and early February. In an exceptionally snowy winter, some governments will exceed the maximum tonnage commitments specified in contracts and will have to order extra supplies on the "spot" market. These spot sales are exceptionally profitable,giving salt producers a license to rape and pillage. 1Q 2005 was a record quarter for CMP with many government maxing out their contracts and some spot sales. In contrast, the recently quarter was so warm and dry that I doubt many government entities took much tonange beyond their required contractural minimums. The lack or reorders will fall in the 1st quarter and translate in pathetic sales. In fact, I would guess that many goverments still have exceptionally high inventory levels of salt still, which will dampen their appetite when they award bidding contracts next winter.

      Although we have been both using ROH's salt numbers as a proxy for future CMP number's, that's being overly generous to CMP. Since they have a respected brand, that cute little girl with the umbrella, Morton probably earns 40% of its profits from their general trade division, with the remnaining 60% coming from deicing. In contrast CMP's division between general trade and deicing is probably closer to 20% /80%. Accordingly, although Morton's numbers were bad, they were moderated by Morton's consumer sales. Since CMP is much more dependent on deicing sales, it should suffer even worse than Morton.

      Potash profitability will probably be down year over year. Take a look at analyst estimates for Potash of Saskatchewan (NYSE: POT), the largest potash producer in the world. They are expecting lower profitability than last year due to weaker pricing caused by a poorer export environment. Before you suggest that CMP can combat lower prices with greater volume, go back and reread the 10-K and you should know that CMP was pretty much sold out its full capacity last year.

      Still don't believe me, ask yourself why all of management are excercising options and selling stock with abandon. Go through each and every executive (management not directors) and you will see that almost every executive, except the CEO, has sold over half of their holdings in the last year. Is it rational for them to sell now if they expect a rosy future caused by good earnings reports.

    • Your logical inconsistencies are astounding and tiresome:

      1. You take out a short position based on PROJECTIONS about snowfall, earnings and season-ending inventory levels, but require me to show a press release for the no brainer assessment that CMP used excess cash to reduce debt in the quarter????? If you knew anything about this company whatsoever, you would know that, due to the seasonal drawdown of working capital balances, 1Q is massively cash positive for CMP. For 2004, CMP generated 134% of their full year CFO-capex during 1Q. For 2005, they generated 154% of full year CFO-capex during 1Q.

      2. In my more detailed analysis of CMP's likely 1Q06 results based on ROH's reported results, nothing changed at all with respect to my original message that, applying a sequential comparison, they beat 75 cents. I added the year-over-year comp which points to 61 cents. I happen to think that the answer lies somewhere in between. Nevertheless, the sequential comp makes more sense from this standpoint: 1Q05 results were driven by the evolution of the winter season that occurred in 4Q04 (e.g. snow events in late Dec which drive inventories/orders in early Jan). 4Q05, which drove the starting inventory/order environment for 1Q06, was absolutely nothing like 4Q04 (CMP sales and EBITDA 4Q05, excluding UK industrial, were both up 30+% vs. PY). Whereas, ROH and CMP should have seen relatively similar business trends sequentially. Anyway, the difference between sequential and year-over-year anlysis in this particular business are not so great, nor is sequential analysis so clearly wrong, to merit your orginal slander that I was "intellectually dishonest".

      This board, while relatively quiet, had a respectable tone, where longs/shorts debated based on facts and without hurling insults. Then you came along. Welcome to "IGNORE" you f-ing idiot ...

    • In response to second law's post: it's incorrect to provide Rohm's and Haas year over year (Q1 2006 vs Q1 2005) numbers and then make a sequential quarterly comparison (Q4 2005 vs Q1 2006) of CMP's numbers. It could be called intellectual dishonesty, but I'll give you the benefit of the doubt and just assume that you are looking at the numbers more with your heart than your head.

      Here is Rohm & Haas's announcement:

      For those too lazy to read the entire PR, the relevant parts follow:

      SALT Sales of $263 million were down 17 percent versus the same period a year ago, primarily due to weak demand for ice control products as a result of the unusually warm weather early this year in the Midwest and Northeastern United States. Earnings for Salt were $18 million in the quarter, down from $30 million in the prior year period. The impact of lower volumes and higher production and distribution costs more than offset the contribution of higher selling prices.

      The relevant numbers from Rohm & Haas' financial tables state: 1) Salt sales $263 MM vs $318 MM prior year (down 17.3%), 2) Salt earnings were $16 MM vs $30 MM prior year (down 46.7% from last year), 3) Salt EBITDA was $47 MM ve $62 MM prior year (down 24.2%).

      In contrast, the current CMP analyst projections state that CMP's sales will be $229 MM vs 267 MM prior year (down just 14.3%) and earnings will be $0.75 vs $0.87 prior year (down 13.8%).

      If one project's Morton's actual year over year numbers to CMP, CMP's numbers should be sales of just $221 MM and earnings would come in a disastrous $0.47 per share. Even though I am short, even I do not think they will be that bad, but that is what the number compute to.

      Some other factors to consider: 1) Although CMP and ROH sell to roughly the same deicing markets in North America, it is not exactly the same. ROH has larger exposure to Montreal and the rest of Quebec. CMP is generally speaking a lower cost producer, so its margins should be better insulated during a weak winter 2) ROH has larger exposure to consumer cooking and water softening salt than CMP. Consumer salt is generally more stable than deicing salt and probably bolstered ROH's from being even worse, 3) CMP gets an estimated 20% of its profitability from the UK where it has a rock salt monopoly. It was a relatively mild winter in the UK, but then again so was 2005, 4) CMP gets roughly another 20% of its profitability from potash.

      All together, I expect to CMP's numbers to be weak, but not as bad as an extrapolation of ROH's numbers would indicate. I expect them to miss Q1 earnings estimates. Based on high inventories, higher carrying costs, I expect them to warn for the rest of the year. Hence, I am short.

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